Image: PRA Group.

Debt-collection specialist PRA Group (NASDAQ:PRAA) has done a good job of helping businesses avoid having to deal with customers who don't pay in timely fashion, acquiring non-performing loans and then working to collect on them. Coming into its second-quarter financial report Monday afternoon, PRA Group investors were looking forward to another strong quarter of growth in both revenue and net income. Although the debt-collection company succeeded in boosting both of those figures, the growth rate that PRA Group achieved wasn't as high as many had expected. Let's take a closer look at PRA Group's latest quarter and whether it can get back into investors' good graces.

PRA Group keeps growing -- just not fast enough
At first glance, PRA Group's growth continued in similar fashion to what investors have seen previously. Revenue increase by 20% to $237.2 million, and net income jumped an even stronger 37% to $51.4 million. The problem, though, is that investors had hoped to see roughly 26% revenue growth, and earnings of $1.06 per share were almost a dime less than the consensus forecast among those following the stock.

One issue has to do with the fact that PRA Group took a fairly substantial charge in last year's second quarter, related to its acquisition of Aktiv Kapital. Adjusting for that charge, PRA Group's earnings growth rate takes a 20 percentage point hit, with net income growth of just 17% and earnings per share increasing 22%.

PRA Group's sluggishness is even more evident when you look at its various segments on a sequential basis. Cash collections overall rose 22% from a year ago, but they actually fell by $10 million from the fist quarter. Even though European results have been a big driver of growth in the past year, revenue from the core Europe segment fell 10% from the first quarter. In addition, the Americas business, which makes up the vast majority of PRA Group's overall revenue, saw sequential declines in both the core collections and insolvency divisions.

Still, PRA Group continues to invest in new receivables. The company's purchases were roughly evenly split between Europe and the Americas, and PRA Group also committed to a further purchase of $200 million in receivables that will actually get funded in the current quarter.

CEO Steve Frederickson was happy with the progress that PRA Group has made. "The quarter continued many of the trends we have seen over the last 12 months," Frederickson said, "including better-than-expected collections in our U.S. call centers." Frederickson also pointed to strong investment as a driver of future growth.

Can PRA Group make investors happy?
Nevertheless, PRA Group understands that using all available avenues to find ways to grow will be essential to keeping its revenue rising at the rate that investors want and expect. That's one reason why the debt-collection company bought a majority position in Brazilian company RCB Investimentos. RCB is the leading master servicing platform for non-performing loans in Brazil, and PRA Group made use of RCB's capabilities to manage the investments that it made in Brazil last quarter. With geographical diversification, PRA Group hopes not just to find new sources of revenue and income but also to give itself some hedging against the business cycle fluctuations of any one national economy.

One thing that largely hangs under the radar is that PRA Group gets a modest amount of revenue from fee-based business. At $13.9 million, it makes up a tiny part of the company's overall sales, and it also has declined slightly from year-ago levels. It could still become a useful supplement to income in the long run.

PRA Group shares reacted negatively to the missed estimates, following 5% in the first half and a half of after-market trading following the announcement. Given the stock's relatively conservative valuation, it's easy to think of the reaction as being overblown, especially given that PRA Group's growth rate is still impressive from an objective standpoint. As long as PRA Group continues to grow, this pullback seems likely to be just a temporary setback in the stock's overall upward trajectory.