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Have you ever put much thought into pent up demand? You know when you’re going to a football game and you’ve been tailgating quite a bit and you’ve just finished your 11th beer and you start to look around for a port a potty and you can’t find one? That’s pent up demand.
You know when you go to the office in the morning and you have a Venti Starbucks coffee, a bran muffin and the USA Today sports section is sitting at your desk? That’s pent up demand.
Not long ago, the US auto industry was chugging along at a healthy clip. Then the housing market crashed and everyone’s home equity lines disappeared. People still wanted to buy a new car but they didn’t have any quatloops. They wanted to buy a new Corvette so that even though they were an endomorph or didn’t have gigantic biceps like $$$MR. MARKET$$$, at least they could pretend:
So they went to the bank to get more quatloops and the bank pretended they were closed. So even though you still had a job, and wanted a new car, you couldn’t get a loan. GM went bankrupt because you couldn’t get a loan.
Well..that was yesterday.
Today I bought CACC, Credit Acceptance Corp, at 47.28. I will sell it in 4 to 6 weeks at 54.56. Here’s why I like CACC:
Look at this chart…all this stock wants to do is go UP!!!
The stock is up 103% over the last year yet it’s PE is under 10. It’s a growth stock at value stock prices…what a bargain.
Credit Acceptance Corporation provides auto loans to consumers primarily in the United States. The company primarily provides the portfolio and purchase programs. Its portfolio program comprises advancing money to dealer-partners in exchange for the right to service the underlying consumer loan; and the purchase program includes buying the consumer loan from the dealer-partner and keeping various amounts collected from the consumer. The company offers its products through a network of automobile dealers.
At the end of the day, it’s a really simple story. Pent up demand. People haven’t bought cars for two years. Their cars are getting old. They need new cars. In order to get new cars, they need a car loan. That’s where Credit Acceptance comes in. Pent up demand. The consumer loan industry was crushed when the credit markets basically froze. That was yesterday. It’s getting warm outside. Liquidity is no longer a problem and credit markets have stabilized.
As CACC increases their active dealer network, they increase their access to revenue. When someone comes into a lot to buy a car, the car dealer gets online with Credit Acceptance and they work up a loan in less than a minute over the internet. Credit Acceptance generates revenue mostly through servicing fees on loans. It takes 20% on loan payments. If a borrower pays $500 a month to pay down a loan, CACC keeps $100. The quality of loans also should go up as the job market improves since people will need cars to commute (and be true to their loans while employed). CACC works with more than 3,000 independent and franchised automobile dealers in the U.S. and provides capital for auto loans to people with substandard credit. It originates more than 1.7 million loans per year.
In a sign that the capital markets are functioning again, Credit Acceptance recently completed $110.5 million in asset-backed secured financing.
Credit quality will firm up in in 2010, compared to 2009. The securitization market
has opened back up in recent months, aided in part by government support. Just today it was reported that delinquent credit card loans (in excess of 30 days) has decreased for all major credit card companies. If people are paying off their loans, it means they have money to spend. The forecast is good. With these lower loan balances, issuers can raise interest rates and increase credit standards. Based on favorable delinquency trends and an improving economy, default rates should be peaking.
GM has made major strides since entering bankruptcy in June 2009. Last month the car company beat analysts' estimates when it announced that it had earned $865 million in the first quarter. This is an improvement from the same quarter last year when GM lost $6 billion. The auto industry bottomed in the second quarter of 2009 and there will be strong overall growth in car sales in Asia and South America.
So what does this mean for Credit Acceptance’s earnings? Remember, it’s all about the earnings. In April, CACC announced consolidated net income of $32.0 million, or $1.01 per diluted share, for the three months ended March 31, 2010 compared to consolidated net income of $29.0 million, or $0.93 per diluted share, for the same period in 2009.
So things are getting better? Of course. Will they continue? Take a look:
Profit Margin (ttm): 40.81%
Operating Margin (ttm): 64.40%
Return on Assets (ttm): 12.40%
Return on Equity (ttm): 33.15%
Qtrly Revenue Growth (yoy): 6.70%
Gross Profit (ttm): 380.66M
Qtrly Earnings Growth (yoy): 10.40%
ANAL-ysts expect CACC to earn $4.46. Talk about pent up demand…I am laughing so hard at that number I have to siss myself. With the improving auto market, the $$$MR. MARKET$$$ earnings model predicts that CACC will easily earn $5.54 per share in 2010. Even at the ridiculously low PE multiple of 10, that would project to a share price of 10 x $5.54 = $55.40 per share….which is higher than my sale target.
So what are you waiting for? Go down to your auto dealer, get a loan and satisfy some of that pent up demand and buy a car. Then drive home and buy some CACC stock and pay off your loan!
I am HUGE!!
$$$MR. MARKET$$$
You know when you go to the office in the morning and you have a Venti Starbucks coffee, a bran muffin and the USA Today sports section is sitting at your desk? That’s pent up demand.
Not long ago, the US auto industry was chugging along at a healthy clip. Then the housing market crashed and everyone’s home equity lines disappeared. People still wanted to buy a new car but they didn’t have any quatloops. They wanted to buy a new Corvette so that even though they were an endomorph or didn’t have gigantic biceps like $$$MR. MARKET$$$, at least they could pretend:
So they went to the bank to get more quatloops and the bank pretended they were closed. So even though you still had a job, and wanted a new car, you couldn’t get a loan. GM went bankrupt because you couldn’t get a loan.
Well..that was yesterday.
Today I bought CACC, Credit Acceptance Corp, at 47.28. I will sell it in 4 to 6 weeks at 54.56. Here’s why I like CACC:
Look at this chart…all this stock wants to do is go UP!!!
The stock is up 103% over the last year yet it’s PE is under 10. It’s a growth stock at value stock prices…what a bargain.
Credit Acceptance Corporation provides auto loans to consumers primarily in the United States. The company primarily provides the portfolio and purchase programs. Its portfolio program comprises advancing money to dealer-partners in exchange for the right to service the underlying consumer loan; and the purchase program includes buying the consumer loan from the dealer-partner and keeping various amounts collected from the consumer. The company offers its products through a network of automobile dealers.
At the end of the day, it’s a really simple story. Pent up demand. People haven’t bought cars for two years. Their cars are getting old. They need new cars. In order to get new cars, they need a car loan. That’s where Credit Acceptance comes in. Pent up demand. The consumer loan industry was crushed when the credit markets basically froze. That was yesterday. It’s getting warm outside. Liquidity is no longer a problem and credit markets have stabilized.
As CACC increases their active dealer network, they increase their access to revenue. When someone comes into a lot to buy a car, the car dealer gets online with Credit Acceptance and they work up a loan in less than a minute over the internet. Credit Acceptance generates revenue mostly through servicing fees on loans. It takes 20% on loan payments. If a borrower pays $500 a month to pay down a loan, CACC keeps $100. The quality of loans also should go up as the job market improves since people will need cars to commute (and be true to their loans while employed). CACC works with more than 3,000 independent and franchised automobile dealers in the U.S. and provides capital for auto loans to people with substandard credit. It originates more than 1.7 million loans per year.
In a sign that the capital markets are functioning again, Credit Acceptance recently completed $110.5 million in asset-backed secured financing.
Credit quality will firm up in in 2010, compared to 2009. The securitization market
has opened back up in recent months, aided in part by government support. Just today it was reported that delinquent credit card loans (in excess of 30 days) has decreased for all major credit card companies. If people are paying off their loans, it means they have money to spend. The forecast is good. With these lower loan balances, issuers can raise interest rates and increase credit standards. Based on favorable delinquency trends and an improving economy, default rates should be peaking.
GM has made major strides since entering bankruptcy in June 2009. Last month the car company beat analysts' estimates when it announced that it had earned $865 million in the first quarter. This is an improvement from the same quarter last year when GM lost $6 billion. The auto industry bottomed in the second quarter of 2009 and there will be strong overall growth in car sales in Asia and South America.
So what does this mean for Credit Acceptance’s earnings? Remember, it’s all about the earnings. In April, CACC announced consolidated net income of $32.0 million, or $1.01 per diluted share, for the three months ended March 31, 2010 compared to consolidated net income of $29.0 million, or $0.93 per diluted share, for the same period in 2009.
So things are getting better? Of course. Will they continue? Take a look:
Profit Margin (ttm): 40.81%
Operating Margin (ttm): 64.40%
Return on Assets (ttm): 12.40%
Return on Equity (ttm): 33.15%
Qtrly Revenue Growth (yoy): 6.70%
Gross Profit (ttm): 380.66M
Qtrly Earnings Growth (yoy): 10.40%
ANAL-ysts expect CACC to earn $4.46. Talk about pent up demand…I am laughing so hard at that number I have to siss myself. With the improving auto market, the $$$MR. MARKET$$$ earnings model predicts that CACC will easily earn $5.54 per share in 2010. Even at the ridiculously low PE multiple of 10, that would project to a share price of 10 x $5.54 = $55.40 per share….which is higher than my sale target.
So what are you waiting for? Go down to your auto dealer, get a loan and satisfy some of that pent up demand and buy a car. Then drive home and buy some CACC stock and pay off your loan!
I am HUGE!!
$$$MR. MARKET$$$
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