All in all, I'd call the second-quarter results from Motley Fool Hidden Gems selection Portfolio Recovery Associates (NASDAQ:PRAA) quite good, but this isn't exactly a roaring equity market, and while Portfolio Recovery beat expectations on earnings, it was soft on revenues. To me, the expectations piece is a non-issue, but it's safe to consider me an exception that proves the rule (most people are very tuned into expectations).

For the quarter, revenue growth was up 29%, net income increased 23%, and earnings per share increased 23% as well. That's a great performance, but the quarter wasn't all roses. The company saw its margins decline slightly on greater revenues from its commission-based businesses and on operating expenses.

In the long term, I'm OK with this quarter's margin declines for two reasons. First, the lower margins on the commission business is acceptable, because it's largely based on completion of successful outcomes -- such as tracking down the location of a debtor -- and less on successful collections. It's a trade-off, but given the growth and performance, it appears to be a fair one. Second, the increases in operating expenses are, from my understanding of the conference call, largely related to expanding the company's head count to handle greater collections in the future.

That said, the environment for debt collectors remains difficult; pricing on pools of debt remains very competitive, and the company reiterated this on its call. The company also stated that it believes its ability to properly analyze the pools and not overpay for a portfolio of debt gives it a competitive advantage. But this is a tough stock market environment, and not just a tough market for debt collectors to operate in. For comparison, the share-price performances at AstaFunding (NASDAQ:ASFI), Encore Capital Group (NASDAQ:ECPG), and Asset Acceptance Capital (NASDAQ:AACC) haven't exactly been booming, either, and this market is much larger than the publicly traded companies that specialize in the area.

Despite the competitive environment, it was a bit of a surprise that the company was able to spend $27.9 million to purchase $1.66 billion in debt. Taking the performance and purchases into account, I see no immediate reason to change my valuation on Portfolio Recovery, and I still conservatively see the company as 25% undervalued. (For more on how to value Portfolio Recovery, read this commentary from my colleague Jim Gillies.) I'll hold off on purchasing any shares until I have a chance to go through the company's 10-Q filing, but I think management continues to drive this company in the right direction for the long term by sticking to its knitting. As long as it does that, things should work out fairly well.

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At the time of publication, Nathan Parmelee owned shares in Portfolio Recovery but had no interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.