Is Encore Capital Group, Inc. overvalued or undervalued?

As of 1 November 2023, Encore Capital Group, Inc. has moved from a fair to a risky valuation grade, indicating a shift towards a more negative outlook. The company appears to be overvalued, particularly when considering its P/E ratio of 47, which is significantly higher than its peer AdaptHealth Corp., which has a P/E of 12.72. Additionally, Encore's EV to EBITDA ratio stands at 1.95, while its EV to Sales ratio is notably low at 0.51, suggesting potential inefficiencies in revenue generation relative to its enterprise value.
In comparison to its peers, Encore Capital's ROE is relatively low at 2.33%, especially when juxtaposed with its high ROCE of 52.50%, which indicates that while it may generate returns on capital, it struggles to translate that into shareholder equity effectively. The company's recent performance has also lagged behind broader market indices, with a year-to-date return of -18.46% compared to the S&P 500's 2.44%. Overall, these factors contribute to the conclusion that Encore Capital Group, Inc. is currently overvalued in the market.