Is PRA Group a Buy?
The COVID-19 crisis has certainly put many people in financial distress, as the unemployment rate sits at double digits and it seems we keep getting upward of a million new jobless claims each week. Financial distress invariably means people will struggle to pay their bills and may default on their consumer loans.
This, in theory, should be a great time for debt collectors to pick up distressed loans; there should be plenty of supply. But in a tough economy, people will struggle to pay their bills, so collections should be down. It's a push-pull phenomenon. So how is PRA Group (NASDAQ: PRAA) holding up in the current environment?
PRA Group is a debt collector. It buys portfolios of nonperforming loans from credit card companies, banks, auto loan investors, and other creditors. Essentially, when these sellers have been unsuccessful in getting borrowers to make the required payments, they sell them at a discount to someone like PRA Group. PRA Group then tries to use the legal system to get the borrower to pay up. PRA also has an insolvency business, which involves buying nonperforming debt after the customer has entered personal bankruptcy. Last year, PRA purchased $11.7 billion in receivables for a total of $1.3 billion, which means PRA is buying loans at 11 cents on the dollar.
Source Fool.com
