Ah, earnings season. It's the time when companies' earnings reports come flying through the air, thick as a cicada storm. In all the hurly-burly, a Fool can easily miss an earnings release from smaller issues, lost in a storm of news about the earnings collapse at Sears
But some earnings news deserves coverage, even if Wall Street tends to ignore it. Such is the case with Motley Fool Hidden Gems pick Portfolio Recovery Associates
For those unfamiliar with the company, what Portfolio Recovery does is pretty simple. It buys accounts receivables from companies that are owed money, paying as little as a fraction of a penny for a dollar's worth of debt. Then it turns around and collects as much as possible from the debtors (it also collects some debts on a commission basis). When Portfolio Recovery does its job well, and collects more than it paid to buy the debt plus the cost of collecting it, it makes a profit.
Like last quarter, for instance. Portfolio Recovery earned $0.43 per diluted share in the second quarter, a 29% increase over the year-ago quarter. Over the past six months, the company's performance was even better -- earnings of $0.81 per diluted share translated to earnings growth of nearly 31% over the first half of 2003.
Hidden Gems subscribers will recall that in introducing the company to us, Foolish small-cap wizard Rex Moore suggested that we keep an eye on a couple of key metrics in evaluating Portfolio Recovery's performance over future quarters. Let's do that now.
On the cash collections-per-hour front -- the amount of debt collected per hour that Portfolio Recovery's associates are on the phone, haranguing deadbeats -- the company held the line at an impressive $118.49 per hour. Rex also suggested that we monitor whether the company continues to collect at least 2.5 to three times the amount it pays for its debt. According to the 10-Q filing released today, it's still doing fine on that front as well.
Fool contributor Rich Smith owns no shares in any company mentioned in this article.