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($$$MR. MARKET$$$ is a proprietary investor and does not provide individual financial advice. The stocks mentioned on this forum do not represent individual buy or sell recommendations and should not be viewed as such. Individual investors should consider speaking with a professional investment adviser before making any investment decisions.)
Full disclosure….I bought this stock back in 2010 and made money on it. I like it so much now, I bought it again. I liked the write up back then too. So I am using some of it today, since it still makes sense.
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 234.95. I will sell it in 4 to 6 weeks at 270.57. Here’s why I like CACC:
Look at this chart…all this stock wants to do is go UP!!!
The stock is up 107% over the last year yet it’s PE is around 17. 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 yearss. Their cars are getting older. 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 banks are still picky about who they give loans to. The consumer loan industry was crushed when the credit markets basically froze. That was yesterday. It’s getting warm outside and Credit Acceptance wants to loan money to Joe Lunchbox who wants a new car. 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 thousands of independent and franchised automobile dealers in the U.S. and provides capital for auto loans to people with substandard credit.
New auto loan originations are at record highs, thanks to low interest and unemployment rates. Severe delinquency rates are the lowest that they have been in nearly 20 years. Joe Lunchbox is making his payments because he has a job now. The more people who go back to work, the more people who want car loans. CACC specializes in subprime loans, which are loans to people who don’t have the AAA rated credit scores. To cover the risk of a default, the lender charges a high interest rate for the risky loan. Lower overall interest rates have made loans more attractive. Cheaper gasoline has hastened the search for new cars. 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.
So what does this mean for Credit Acceptance’s earnings? Remember, it’s all about the earnings. In April, CACC reported first-quarter profit of $71.5 million. It had net income of $3.41 per share. The results exceeded Wall Street expectations. The average estimate of ANAL-ysts was for earnings of $3.36 per share. The auto financing company posted revenue of $194.2 million in the period.
So things are getting better? Of course. Will they continue? Take a look:
Profit Margin (ttm): 42.91%
Operating Margin (ttm): 67.70%
Return on Assets (ttm): 10.10%
Return on Equity (ttm): 38.59%
Qtrly Revenue Growth (yoy): 10.80%
Gross Profit (ttm): 723.50M
Qtrly Earnings Growth (yoy): 43.60%
ANAL-ysts expect CACC to earn $3.54. 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 $16.17 per share in 2015. Even at the ridiculously low PE multiple of 17, that would project to a share price of 17 x $16.17 = $274.89 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!!
$$$MR. MARKET$$$
www.mrmarketishuge.com
Full disclosure….I bought this stock back in 2010 and made money on it. I like it so much now, I bought it again. I liked the write up back then too. So I am using some of it today, since it still makes sense.
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 234.95. I will sell it in 4 to 6 weeks at 270.57. Here’s why I like CACC:
Look at this chart…all this stock wants to do is go UP!!!
The stock is up 107% over the last year yet it’s PE is around 17. 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 yearss. Their cars are getting older. 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 banks are still picky about who they give loans to. The consumer loan industry was crushed when the credit markets basically froze. That was yesterday. It’s getting warm outside and Credit Acceptance wants to loan money to Joe Lunchbox who wants a new car. 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 thousands of independent and franchised automobile dealers in the U.S. and provides capital for auto loans to people with substandard credit.
New auto loan originations are at record highs, thanks to low interest and unemployment rates. Severe delinquency rates are the lowest that they have been in nearly 20 years. Joe Lunchbox is making his payments because he has a job now. The more people who go back to work, the more people who want car loans. CACC specializes in subprime loans, which are loans to people who don’t have the AAA rated credit scores. To cover the risk of a default, the lender charges a high interest rate for the risky loan. Lower overall interest rates have made loans more attractive. Cheaper gasoline has hastened the search for new cars. 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.
So what does this mean for Credit Acceptance’s earnings? Remember, it’s all about the earnings. In April, CACC reported first-quarter profit of $71.5 million. It had net income of $3.41 per share. The results exceeded Wall Street expectations. The average estimate of ANAL-ysts was for earnings of $3.36 per share. The auto financing company posted revenue of $194.2 million in the period.
So things are getting better? Of course. Will they continue? Take a look:
Profit Margin (ttm): 42.91%
Operating Margin (ttm): 67.70%
Return on Assets (ttm): 10.10%
Return on Equity (ttm): 38.59%
Qtrly Revenue Growth (yoy): 10.80%
Gross Profit (ttm): 723.50M
Qtrly Earnings Growth (yoy): 43.60%
ANAL-ysts expect CACC to earn $3.54. 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 $16.17 per share in 2015. Even at the ridiculously low PE multiple of 17, that would project to a share price of 17 x $16.17 = $274.89 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!!
$$$MR. MARKET$$$
www.mrmarketishuge.com
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