Is it time to put Encore Capital Group (NASDAQ:ECPG) on your watch list?
Like a puppy chasing its tail, some new investors are often looking for “the next big thing,” even if that means buying “history stocks” with no revenue, let alone profit. Unfortunately, high-risk investments are often unlikely to ever return, and many investors pay a price to learn their lesson.
Contrary to all that, I prefer to spend time on companies like Encore Capital Group (NASDAQ:ECPG), which not only generates revenue, but also profits. Even if stocks are fully valued today, most capitalists would recognize its earnings as a demonstration of consistent value generation. In comparison, loss-making companies act like a sponge for capital – but unlike such a sponge, they don’t always produce something when pressed.
Check out our latest analysis for Encore Capital Group
Encore Capital Group’s earnings per share are up.
As one of my mentors once told me, stock price follows earnings per share (EPS). This means EPS growth is seen as a real benefit by most successful long-term investors. For my part, I am blown away by the fact that Encore Capital Group has increased EPS by 54% per year over the past three years. This kind of growth never lasts long, but like a shooting star, it’s worth watching when it happens.
I like to take a look at earnings before interest and tax margins (EBIT), as well as revenue growth, to get another view of the quality of the company’s growth. Not all of Encore Capital Group’s income this year is income operations, so keep in mind that the revenue and margin figures I used may not be the best representation of the underlying business. While we note that Encore Capital Group’s EBIT margins have remained flat over the past year, revenues increased 4.2% to $1.7 billion. It is progress.
You can check the company’s revenue and profit growth trend in the table below. For more details, click on the image.
In investing, as in life, the future matters more than the past. So why not check this out free interactive visualization of Encore Capital Group provide profits?
Are Encore Capital Group insiders aligned with all shareholders?
I feel safer owning stock in a company if insiders also own stock, thereby aligning our interests more closely. So it’s good to see that Encore Capital Group insiders have a lot of capital invested in the stock. To be precise, they own $26 million worth of stock. It shows strong buy-in and can indicate belief in the business strategy. Even though that’s only about 1.9% of the company, it’s enough money to indicate alignment between company executives and common stockholders.
It means a lot to see insiders invested in the company, but I wonder if the compensation policies are shareholder-friendly. Well, based on the CEO’s salary, I’d say they are indeed. I found that the median total compensation for CEOs of companies like Encore Capital Group with a market capitalization between $1.0 billion and $3.2 billion is around $5.4 million.
The CEO of Encore Capital Group received compensation of $4.6 million for the year ending . That seems pretty reasonable, especially given that it’s below the median for companies of a similar size. Although the level of CEO compensation is not a determining factor in my view of the company, modest compensation is positive, as it suggests that the board has the interests of shareholders in mind. I would also say that reasonable levels of compensation attest to good decision-making more generally.
Does Encore Capital Group deserve a place on your watch list?
Encore Capital Group’s earnings took off like any random cryptocurrency, in 2017. The icing on the cake is that insiders own a bucket of shares, and the CEO’s salary really seems quite reasonable. The strong improvement in EPS suggests businesses are doing well. Encore Capital Group certainly ticks a few of my boxes, so I think it’s probably worth looking into further. However, before you get too excited, we found out 2 warning signs for Encore Capital Group of which you should be aware.
You can invest in the company of your choice. But if you’d rather focus on stocks that have been insider buying, here’s a list of companies that have been insider buying over the past three months.
Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.