Encore Capital Group, Inc. (NASDAQ:ECPG)

Low PEG and P/E

Encore Capital Group had great earnings in 2009 but will struggle significantly in 2010 and thus I expect their stock price to underperform once 1st quarter earnings are released.

Encore generated about 45% of their revenue and collections from their litigation channel which uses outside attorneys to collect on their behalf.

In December of 2009 the largest collection litigation attorney in the US (Axiant LLC) declared bankruptcy and was required by the State of Maryland to suspend all collections until futher notice. This means that Encore will not be able to generate any collections from one of the largest attorney networks during the best collection period of the year (first quarter when people get their tax returns). Couple this lack of collections with expectations from legal collections and you should expect both a collections short-fall this year but in addition collections misses on portfolios which will result in portfolio impairments. This combination does not bode for a good year for Encore Capital Group.