What's It Worth To You?
PRAA

In these turbulent times of foreclosures, increasing debt defaults, high consumer credit, it's important to ask the question: who benefits?

The answer has led me to a company called Portfolio Recovery Associates (PRAA).
PRAA business model is simple and straightforward. The company buys defaulted credit ebts from lenders for just a few pennies on the dollar and tries to recover some of the debt. As long as PRAA can collect a few pennies more than it paid for the debt, the company makes a solid profit. Their record for doing just that has been phenomenal.

This is a well run company. Its leadership under CEO Steven Fredrickson and CFO Kevin Stevenson have demonstrated an ability to be disciplined in their transactions and have run things efficiently since its founding. That discipline has helped PRAA avoid the most dangerous mistake the company can make: buying too much debt without proper regard for the price paid.

The companies accounting has also been very conservative. Given this history as well as the current situation in the credit market, PRAA was worth a good look.

From the Motley Fool:

Portfolio Recovery made massive debt acquisitions -- the second-largest quarterly purchases in the company's history. In the first half of 2007, PR purchased nearly $102.3 million in debt; that's nearly as much as the $105.8 million it bought in all of 2006. Management indicated that its most recent purchases come with higher collection expectations than those from the past 12 to 18 months. Higher purchases are very good news, though perhaps not too surprising, since PR's "suppliers" -- big credit card companies like Capital One (NYSE: COF), Bank of America (NYSE: BAC), and Citigroup (NYSE: C) -- have all been charging off debt at greater rates this year than last.
Also, the growth of Portfolio Recovery's three wholly owned fee-for-service businesses has been outstanding, even though one of the three (Anchor Receivables Management, which collects cash on behalf of third parties) still faces headwinds.
Finally, the steadiness of PR's profit margins is a happy sign, especially given how well the fee-for-service businesses have done. These subsidiaries are inherently lower-margin, so you'd expect them to squeeze overall margins as they grow. The healthy margins are also good news, in light of productivity problems at Portfolio Recovery's newest call center.

I calculated the fair value of PRAA stock to be between $55 to $58 making it a fair buy right now, but not a great buy at discount. Looking at the P.E, we realize it is selling at a little discount compared to it's historical price. It currently has a P.E of 17 compared to the average of 21. Free cash flow is great and growing at a good clip also.
You can be patient on this stock and I recommend patience when it comes to investing, but don't wait around for it. If other better investments show up, take it. PRAA may not get really cheap anytime soon because of favorable conditions in the news.

If you are ok with just simply growing with the company going forward without too much worry for a risk cushion, it's as good a time as any to buy. Just do your homework.