Encore Capital Group (ECPG)
Encore Capital Group doesn’t excite us. Its sales have underperformed and its low returns on capital show it has few growth opportunities.― StockStory Analyst Team
1. News
2. Summary
Why We Think Encore Capital Group Will Underperform
Operating in the often misunderstood world of debt collection since 1999, Encore Capital Group (NASDAQ:ECPG) purchases portfolios of defaulted consumer debt at deep discounts and works with individuals to recover these obligations while helping them toward financial recovery.
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 15.9% annually while its revenue grew
- Annual revenue growth of 1.3% over the last five years was below our standards for the financials sector
- 11× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Encore Capital Group is in the doghouse. We’re hunting for superior stocks elsewhere.
Why There Are Better Opportunities Than Encore Capital Group
Encore Capital Group’s stock price of $52.26 implies a valuation ratio of 7.2x forward P/E. This sure is a cheap multiple, but you get what you pay for.
Cheap stocks can look like great bargains at first glance, but you often get what you pay for. These mediocre businesses often have less earnings power, meaning there is more reliance on a re-rating to generate good returns - an unlikely scenario for low-quality companies.
3. Encore Capital Group (ECPG) Research Report: Q3 CY2025 Update
Debt recovery company Encore Capital Group (NASDAQ:ECPG) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 25.4% year on year to $460.4 million. Its GAAP profit of $3.17 per share was 60.1% above analysts’ consensus estimates.
Encore Capital Group (ECPG) Q3 CY2025 Highlights:
Company Overview
Operating in the often misunderstood world of debt collection since 1999, Encore Capital Group (NASDAQ:ECPG) purchases portfolios of defaulted consumer debt at deep discounts and works with individuals to recover these obligations while helping them toward financial recovery.
Encore operates primarily through two main business segments: Midland Credit Management (MCM) in the United States and Cabot Credit Management (CCM) in Europe, particularly the United Kingdom. The company acquires defaulted receivables—unpaid financial obligations to banks, credit unions, retailers, and other creditors—typically at 5-20% of face value, then attempts to collect on these accounts through various channels.
When Encore acquires a portfolio, it analyzes account-level data to develop tailored collection strategies for each consumer. These strategies include direct mail campaigns, call center outreach, digital communications, and sometimes legal action. For example, when a consumer with credit card debt falls behind on payments, the original lender might eventually sell that debt to Encore, which then contacts the consumer to establish a payment plan that fits their financial situation.
The company generates revenue by collecting more than it paid for the debt portfolios. Encore's approach varies based on consumers' ability and willingness to pay—those facing genuine hardships may receive modified payment plans, while those deemed able but unwilling to pay might face legal action. In addition to its core debt purchasing business, Encore provides debt servicing operations in Europe, where it manages collections for credit originators without purchasing the debt outright.
Encore's business model is heavily regulated, with operations subject to consumer protection laws like the Fair Debt Collection Practices Act in the U.S. and Financial Conduct Authority regulations in the UK. The company has also expanded into other markets, with investments in India and Mexico, though its primary focus remains on the U.S. and European markets.
4. Specialty Finance
Specialty finance companies provide targeted lending or financial services for specific industries or needs. They benefit from expertise in particular sectors, often reduced competition in specialized niches, and tailored underwriting that can yield higher margins. Challenges include concentration risk in specific industries, difficulty achieving scale efficiencies, and potential vulnerability during sector-specific downturns affecting their specialized markets.
Encore Capital Group's main competitors include PRA Group (NASDAQ:PRAA), Ares Management (NYSE:ARES), and Arrow Global Group, along with other debt buyers and collection agencies such as Portfolio Recovery Associates and Intrum.
5. Revenue Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Encore Capital Group’s revenue grew at a weak 1.3% compounded annual growth rate over the last five years. This fell short of our benchmarks and is a poor baseline for our analysis.
We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Encore Capital Group’s annualized revenue growth of 15% over the last two years is above its five-year trend, suggesting its demand recently accelerated. 
Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.
This quarter, Encore Capital Group reported robust year-on-year revenue growth of 25.4%, and its $460.4 million of revenue topped Wall Street estimates by 11.9%.
6. Pre-Tax Profit Margin
Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Specialty Finance companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.
Interest income and expenses play a big role in financial institutions' profitability, so they should be factored into the definition of profit. Taxes, however, should not as they are largely out of a company's control. This is pre-tax profit by definition.
Over the last four years, Encore Capital Group’s pre-tax profit margin has risen by 22.5 percentage points, going from 24.3% to 1.8%. It has also declined by 2 percentage points on a two-year basis, showing its expenses have consistently increased at a faster rate than revenue. This usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.
Encore Capital Group’s pre-tax profit margin came in at 21.7% this quarter. This result was 10.6 percentage points better than the same quarter last year.
7. Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Sadly for Encore Capital Group, its EPS declined by 17.8% annually over the last five years while its revenue grew by 1.3%. We can see the difference stemmed from higher interest expenses or taxes as the company actually improved its pre-tax profit margin and repurchased its shares during this time.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For Encore Capital Group, its two-year annual EPS declines of 94.9% show it’s continued to underperform. These results were bad no matter how you slice the data.
In Q3, Encore Capital Group reported EPS of $3.17, up from $1.26 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast Encore Capital Group’s full-year EPS of negative $1.83 will flip to positive $8.16.
8. Return on Equity
Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.
Over the last five years, Encore Capital Group has averaged an ROE of 4.7%, uninspiring for a company operating in a sector where the average shakes out around 10%.
9. Balance Sheet Risk
The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.
If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.
Encore Capital Group currently has $3.93 billion of debt and $952.9 million of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 4.5×. We think this is dangerous - for a financials business, anything above 3.5× raises red flags.
10. Key Takeaways from Encore Capital Group’s Q3 Results
It was good to see Encore Capital Group beat analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock traded up 10.9% to $47.50 immediately following the results.
11. Is Now The Time To Buy Encore Capital Group?
Updated: December 4, 2025 at 11:43 PM EST
Before investing in or passing on Encore Capital Group, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.
Encore Capital Group’s business quality ultimately falls short of our standards. To begin with, its revenue growth was weak over the last five years. On top of that, Encore Capital Group’s declining pre-tax profit margin shows the business has become less efficient, and its declining EPS over the last five years makes it a less attractive asset to the public markets.
Encore Capital Group’s P/E ratio based on the next 12 months is 7.1x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now.
Wall Street analysts have a consensus one-year price target of $60.25 on the company (compared to the current share price of $52.99).