ECPG

We rate ENCORE CAPITAL GROUP INC (ECPG) as a Hold with a composite score of 58.5/100 at a current price of $58.62. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in momentum (74th percentile) and value (74th percentile), which together account for the majority of the composite score. Offsetting weakness in stability (26th percentile) and investment (27th percentile) tempers our overall conviction. We assign a No Moat rating (33/100), Very High uncertainty, and Poor capital allocation.

Key items to watch: balance sheet deleveraging progress; sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

ENCORE CAPITAL GROUP INC holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 58.5/100 places it at rank #834 in our full 7,333-stock universe. At $961M in market capitalization, ENCORE CAPITAL GROUP INC is a small-cap player in the Finance, Insurance, And Real Estate space, which limits certain scale advantages but may allow for more agile strategic execution.

The near-term outlook is constructive, with revenue growing at 30% and momentum in the 74th percentile confirming positive market sentiment and institutional accumulation. The combination of strong top-line growth and favorable price dynamics suggests the company is executing well on its growth strategy. Investment factor at the 27th percentile indicates reinvestment patterns that investors should monitor for sustainability.

The margin cascade tells an important story: gross margins of 75% (-1.5pp vs sector) narrow to operating margins of 33% (+16.4pp vs sector) and net margins of 12.4%, yielding a gross-to-net conversion rate of 17%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $58.62, ENCORE CAPITAL GROUP INC appears undervalued relative to its fundamentals. Our value factor score of 74/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 6.2x (a 48% discount to the sector median of 11.9x), EV/EBITDA of 2.2x (discounted to peers), P/B of 1.4x, P/S of 0.8x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Very High uncertainty rating to ENCORE CAPITAL GROUP INC. The stock exhibits multiple compounding risk factors: elevated market sensitivity (beta of 1.47), significant leverage (452% debt-to-equity), below-average price stability (26th percentile). The extreme uncertainty around future cash flows makes precise valuation difficult, and the range of outcomes is exceptionally wide. Only investors with high risk tolerance and extended time horizons should consider this name.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.47); significant leverage (452% debt-to-equity); below-average price stability (26th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 26th percentile and quality factor at the 69th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 75% provide a buffer against cost pressures. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate ENCORE CAPITAL GROUP INC's capital allocation as Poor. Key concerns include elevated leverage (452% D/E). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — ENCORE CAPITAL GROUP INC significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, ENCORE CAPITAL GROUP INC receives a Hold rating with a composite score of 58.5/100 (rank #834 of 7,333). Our quantitative framework assigns a No Moat (33/100, trend: stable), Very High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 54/100.

Our analysis supports a neutral stance on ENCORE CAPITAL GROUP INC. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.