There are four publicly traded companies that derive most of their revenue from operating post-chargeback trade receivables. These companies fit into a generally accepted definition of “debt collector”.
But all four aren’t really debt collectors, they’re debt buyers. Each uses capital to buy portfolios of debt and then tries to get a return on investment by collecting debt from consumers. Regardless…they are debt collectors for that purpose (well, that’s Is question, for many reasons, but we will discuss that another time).
And all of them are traded on the NASDAQ stock exchange.
Asset Acceptance Capital Corp. (AACC), Asta Funding, Inc. (ASFI), Encore Capital Group (ECPG) and Portfolio Recovery Associates (PRAA) are the four I’m talking about.
So far in the second quarter they are all positive, unlike the Dow Jones Industrial Average. In fact, a few of them are on the rise.
For comparison, the Dow Jones Industrial Average is down 4.4% over the same period.
The accounts receivable management industry is highly fragmented, with companies using very different strategies not only to collect or liquidate accounts, but also in how their businesses are structured. This is evident even among the four state-owned companies.
Encore Capital, for example, has seen two strong one-day price increases so far in the second quarter. The first came after the company released its first quarter 2012 results. The title of the report wasn’t particularly great, but investors saw what the company was doing: it sold a bankruptcy processing unit and acquired a company involved in the acquisition of a tax lien. The second spike occurred around the company’s annual shareholder meeting last week.
On the other hand, the rise in the Asset Acceptance share price was a little more regular. The company’s stock price rose rapidly, but steadily, throughout April and the first half of May and has been up and down (but overall, flat) since then.
We’re not the only band noticing the performance. Last month, a group of analysts specifically rated AACC, ECPG and PRAA as strong performers in a small cap report. The takeaway from this report was that there are significant opportunities in the ARM industry for investors, but the industry also has an unusual risk associated with it due to its changing regulatory environment (collectors will be regulated by the CFPB by the end of this year, we believe).
Patrick Lunsford is Editor-in-Chief at insideARM.com, the most credible source of news and opinion for the professional Accounts Receivable Management (ARM) industry.