Is Encore Capital Group, Inc. overvalued or undervalued?

As of 1 November 2023, Encore Capital Group, Inc. has moved from an expensive to a risky valuation grade. The company appears to be overvalued, given its high P/E ratio of 47 compared to peers like Nelnet, Inc. at 11.39 and Enova International, Inc. at 14.65. Additionally, Encore's EV to EBITDA stands at 1.95, which is significantly higher than the industry average, indicating a premium valuation that may not be justified by its financial performance.
In terms of returns, Encore Capital Group has underperformed against the S&P 500 over multiple periods, with a year-to-date return of -3.52% compared to the S&P 500's 12.22%. This trend continues over longer periods, with a 3-year return of -7.69% versus the S&P 500's 70.41%. These figures suggest that the market may be pricing in risks that are not adequately reflected in the company's current valuation ratios.