Collection House Limited (ASX: CLH) has seen its share price sink by 27% so far in 2016, with most of the plunge coming from the debt collector’s half year results reported in February.

After falling to 93 cents, the share price has recovered to trade at $1.26 currently.

Speaking at the company’s AGM today, Chairman David Liddy acknowledged the 17% fall in net profit for the 2016 financial year (FY16), and the commencement of new CEO Anthony Rivas in July.

The company also admitted to underinvesting in Purchased debt ledgers (PDLs) – the lifeblood of a debt collector. Collection House only participated in 12 out of 75 PDL new bidding opportunities “due to perceived pricing issues”.

That action meant competitors like Credit Corp Group Limited (ASX: CCP) and Pioneer Credit Ltd (ASX: PNC) were given free rein in the PDL market.

The underinvestment also means that future years’ performance will be affected, as accounts can take some years to collect on. To fix that problem, Collection House says it has already exceeded the number of bids made in the 2016 financial year. The company expects to spend between $63 and $65 million in FY17 – above the $61.9 million spent in FY2016.

The company has also cut 76 roles to slash costs and increase productivity as part of its two-year plan. The company expects to generate sustained earnings per share growth by June 2018 and restore and exceed historical margins (earnings before interest and tax – EBIT, and net profit).

The good news is that Collection House expects to report a net profit of around $20 million and earnings per share of 14-15 cents in FY17 – a better result than FY16.

With a market cap of ~$172 million at the current share price of $1.26, that represents a P/E ratio of just 8.6x. For comparison, Credit Corp trades on a trailing P/E of 18.8x, and Pioneer on 8.4x FY17 expected net profit.

Assuming Collection House maintains last years’ dividend of 7.8 cents, that represents a dividend yield of 6.2%.

Foolish takeaway

Fears that Collection House’s business was coming to an untimely end may have been greatly exaggerated, and this is one business investors might want to add to their watchlist.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.