Seeking Alpha: PRA Group Feeling A Tough Squeeze

Whatever the arguments about PRA Group's (NASDAQ:PRAA) underlying financial performance, there is really no argument that the stock market performance has been abysmal, with the shares down almost 40% since my last update on the company. PRA Group is trying to deal with multiple headwinds at once - the bankruptcy business has fallen off sharply, regulatory impediments are increasing, supply is tight, and the company is no longer in a part of the cycle that is as conducive to attractive collections numbers.

PRAA has navigated cyclical ups and downs before, and I believe the company will do so successfully once again. It's a high-risk call, though, as the company can do little to influence supply or the regulatory environment and the company's size makes outperformance more challenging. I believe the market is assuming a pretty sharp drop in the long-term profitability of the business that doesn't fully account for the potential of the non-U.S. business, nor the money to be made when large traditional sellers return to the market. Given the challenging accounting here and the generally reviled nature of the debt collection industry, I believe this is a story with high risk to offset the significant potential gains if 20% ROEs are still in play on a long-term basis.

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PRA Group Feeling A Tough Squeeze