Macro environment
1. When you ignore your margin call for 6 months and the debt is sold to a collection agency you can legally make them forgive your debt, since you technically own their company.
2. Total consumer debt is at ita highest level ever, and deliquencies greater than 90 days are their highest since 2008, with the important exception of mortgages.
3. Household debt service payments as a percent of GDP and a percent of household disposable income are at low levels. I think this suggests that the consumer is mostly healthy, and most deliquent debts should be recoverable.
Individual stock pick
I favor PRAA. They recently had a rough patch post pandemic, which resulted in a leadership change and turnaround plan. By all metrics both seem to have been effective, but as of today they are trading near their lowest levels from the past few years.
1. Praa's p/e ratio is low( 11), when most of their history they traded around 15-20. P/s and p/b ratios are their lowest ever.
2. As PRAA continues to implement their turn around plan, sales and margins should both increase. Forward pe is around 8.5.
3. The rest of the market is at a frothy valuation, making this a rare value pick.
4. The recent dip seems to be a combo of poor consumer sentiment and a bad ER from one of their competitors, plus general market correction.
5. Praa purchased the most debt it ever has in 2024, which means it should return highest sales/earnings ever in the future. They also have the highest level of estimated remaining collections ever.
6. None of PRAAs debt comes due for another 2 years.
7. Return on average tangible equity is forecasted to be 12% this year, a 30% increase over 2024. In 2022, PRAA had a 15% ROATE, and their stock price peaked at $50.
I think PRAA can hit $30 in the next 12 months.
Positions are in the images. Also have about 7000 invested into PRAA in my 401k, soon to be $10k.