PRL’s selloff was due to primarily fundamental reasons, which may take some time to recover. Sentiment and concern over a possible recession and losses also played a role. With that said, we don’t think there is anything severely wrong with the business model; it is simply part of the economic cycle where weak consumer spending leads to an increase in delinquencies. Management is actively managing risk and will look to increase volume again once they have a better macroeconomic backdrop. Overall, we think PRL has decent potential to recover from the current prices once fundamentals improve.
We agree that there are many attractive opportunities in this market. Of course, it still depends on the situation, but we are comfortable reducing some PRL to purchase other names if the prospects and valuation of the potential candidates are attractive enough to justify the switch and one wants to reduce small cap exposure/risk.