We came across a bullish thesis on PRA Group, Inc. (PRAA) on Leahi Capital’s Substack by Leahi Capital. In this article, we will summarize the bulls’ thesis on PRAA. PRAA Technologies, Inc.’s share was trading at $22 as of Sept 24th. PRAA’s trailing and forward P/E were 220 and 11.05 respectively according to Yahoo Finance.
PRA Group, a debt buyer and collector is currently going through a recovery after posting its first loss since its 2002 IPO. For years, PRA has been profitable but a combination of macroeconomic factors and operational missteps led to underperformance.
PRA purchases non-performing loans (NPLs) from banks and finance firms. The portfolio’s estimated remaining collections stood at $6.8 billion for credit card receivables, personal loans, and auto loans it holds. Europe accounted for 51% of the ERC, while the Americas and Australia contributed 49%. PRA’s in-house collection services and 20+ years of proprietary data provide a competitive edge in this heavily regulated industry, where its market share is estimated at 30% in the U.S. and Europe.
The market conditions have changed in favor of PRA as delinquencies have risen to 10.9% and the overdue credit card balances stand at record highs of $1.1 trillion leading to ample supply for debt collectors like PRA to buy at attractive prices thus enabling them to generate better potential return. PRA made a $21.5 million profit in Q2 2024, resulting in an annualized ROE of 8%. With 50% of their debt having variable interest rates and 70% of that hedged, a 250 bps drop-in interest rates could save them in financing costs.
PRA Group (PRAA) is currently trading at 1.1 times its tangible book value, which is lower than its historical average of 2.5 times, suggesting it might be undervalued. The new management team is focusing on disciplined portfolio acquisitions and operational efficiencies, which could lead to a turnaround and big investors like BlackRock and Vanguard hold significant shares, showing strong confidence in the company making the target price of $42 look attractive.
PRA Group, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 10 hedge fund portfolios held PRAA at the end of the second quarter which was 7 in the previous quarter. While we acknowledge the risk and potential of PRAA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PRAA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.