PRA Group, Inc. (PRAA): A Bull Case Theory

We came across a bullish thesis on PRA Group, Inc. (PRAA) on Substack by Phenom Capital. In this article, we will summarize the bulls’ thesis on PRAA. PRA Group, Inc. (PRAA)’s share was trading at $21.05 as of March 27^th. PRAA’s trailing and forward P/E were 11.76 and 11.57 respectively according to Yahoo Finance.

PRA Group (PRAA) is a major global debt collection firm, generating 62% of its cash collections from the U.S. and Australia, with the remaining 38% coming from Europe. The company is undergoing a significant transformation, having replaced 80% of its management team to drive a turnaround. Given its counter-cyclical nature, PRAA serves as a potential hedge against a market downturn, as rising charge-off rates and increasing consumer debt levels create a favorable environment for its business. Credit card debt balances have surged 30% since 2019, and charge-off rates have climbed to 4.5% from pandemic-era lows, improving PRAA’s ability to acquire distressed debt at attractive prices.

Despite posting a loss in 2023—its first after 19 years of profitability—the company has shown strong signs of recovery. Over the last three quarters, earnings have accelerated, and PRAA has surpassed the upper end of its 2024 ROATE guidance of 6–8%, now projecting double-digit returns in 2025. If the company achieves a conservative 10–12% ROATE on its $761 million of tangible equity, projected earnings could reach $76–$91 million, or $1.92–$2.30 per share, implying a forward P/E of about 10x. Historically, PRAA has traded at ~15x earnings and over 1x P/B, suggesting significant upside potential.

With prior returns on tangible equity of 15–20% from 2020 to 2022, the company has room to grow earnings meaningfully, potentially driving the stock to a 6x P/E at the midpoint. Given the clear path to profitability recovery and a return to historical valuation multiples, PRAA appears well-positioned to regain its pre-2023 levels near $40 per share. This turnaround, combined with favorable industry dynamics and an undervalued stock price, creates an attractive investment opportunity with strong risk/reward potential.

PRA Group, Inc. (PRAA) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 16 hedge fund portfolios held PRAA at the end of the fourth quarter which was 13 in the previous quarter. While we acknowledge the risk and potential of PRAA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PRAA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.