Encore Capital Group (NASDAQ: ECPG) and Credit Acceptance Corporation (NASDAQ:CACC) are both finance companies, but which is the superior business? We will contrast the two companies based on the strength of their profitabiliy, dividends, analyst recommendations, earnings, risk, valuation and institutional ownership.

Insider & Institutional Ownership

72.1% of Credit Acceptance Corporation shares are held by institutional investors. 8.8% of Encore Capital Group shares are held by company insiders. Comparatively, 5.8% of Credit Acceptance Corporation shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Risk & Volatility

Encore Capital Group has a beta of 1.77, suggesting that its share price is 77% more volatile than the S&P 500. Comparatively, Credit Acceptance Corporation has a beta of 0.53, suggesting that its share price is 47% less volatile than the S&P 500.

Profitability

This table compares Encore Capital Group and Credit Acceptance Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Encore Capital Group 7.21% 13.72% 2.16%
Credit Acceptance Corporation 35.03% 32.36% 8.78%

Earnings & Valuation

This table compares Encore Capital Group and Credit Acceptance Corporation’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Encore Capital Group $1.01 billion 1.02 $269.36 million $2.81 14.29
Credit Acceptance Corporation $812.30 million 6.07 $343.75 million $17.43 14.34

Credit Acceptance Corporation has higher revenue, but lower earnings than Encore Capital Group. Encore Capital Group is trading at a lower price-to-earnings ratio than Credit Acceptance Corporation, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of recent recommendations for Encore Capital Group and Credit Acceptance Corporation, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Encore Capital Group 0 4 1 0 2.20
Credit Acceptance Corporation 2 5 0 0 1.71

Encore Capital Group currently has a consensus price target of $30.40, suggesting a potential downside of 24.28%. Credit Acceptance Corporation has a consensus price target of $199.57, suggesting a potential downside of 20.18%. Given Credit Acceptance Corporation’s higher probable upside, analysts plainly believe Credit Acceptance Corporation is more favorable than Encore Capital Group.

Summary

Credit Acceptance Corporation beats Encore Capital Group on 9 of the 14 factors compared between the two stocks.

About Encore Capital Group

Encore Capital Group, Inc., through its subsidiaries, is a specialty finance company providing debt recovery solutions for consumers and property owners across a range of financial assets. The Company operates through Portfolio Purchasing and Recovery segment. The Company’s geographical segments include the United States, Europe and other. The Company’s portfolios of defaulted consumer receivables at discounts and manages them by partnering with individuals as they repay their obligations and work toward financial recovery. Defaulted receivables are consumers’ unpaid financial commitments to credit originators, including banks, credit unions, consumer finance companies, commercial retailers, and telecommunication companies. Defaulted receivables also include receivables subject to bankruptcy proceedings. The Company through certain subsidiaries, is engaged in portfolio purchasing and recovery in the United States, including Puerto Rico.

About Credit Acceptance Corporation

Credit Acceptance Corporation offers financing programs that enable automobile dealers to sell vehicles to consumers. The Company’s financing programs are offered through a network of automobile dealers. The Company has two Dealers financing programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, the Company advances money to dealers (Dealer Loan) in exchange for the right to service the underlying consumer loans. Under the Purchase Program, the Company buys the consumer loans from the dealers (Purchased Loan) and keeps the amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as Loans. As of December 31, 2016, the Company’s target market included approximately 60,000 independent and franchised automobile dealers in the United States. The Company has market area managers located throughout the United States that market its programs to dealers, enroll new dealers and support active dealers.

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