CACC: Is It Time To Buy Puts on Credit Acceptance?

Credit Acceptance Corporation provides innovative financing solutions, enabling automobile dealers to sell vehicles to consumers regardless of their credit history. They operate through a nationwide network of dealers, offering two main programs: the 'Portfolio Program', where they advance money to dealers for the right to service consumer loans, and the 'Purchase Program', where they buy consumer loans outright. These programs target consumers with impaired or limited credit histories, who often cannot obtain traditional financing. Credit Acceptance differentiates itself by offering dealers a profitable and efficient method to finance these consumers. Their 'Credit Approval Processing System' (CAPS) allows dealers to interact with their proprietary credit scoring system, optimizing transaction structures and creating legally compliant loan documents.

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CACC's technical outlook is decidedly bearish. The stock has experienced a significant downtrend over the past 90 days, falling from a high near $530 in early July to its current price of $430.26. The price is below both the 50-day SMA (493.96) and the 200-day SMA (495.53), confirming the prevailing downtrend. Momentum indicators further support this bearish view. The MACD is negative (-7.72) and trending further below its signal line (-2.67), and the RSI is at 39.58, indicating oversold conditions, but with room for further decline. The STOCHk is at 9.88, which is extremely oversold. The EMA_21 is at 481.64 and is also trending down. The recent price action shows a sharp decline with little sign of reversal, suggesting continued downward pressure in the short to medium term. The ATR is very high at 20.82, indicating high volatility which is expected during a sharp downtrend. Given these factors, a bearish outlook is warranted for CACC over the next 1-3 months.

The MD&A presents a mixed picture. For the three months ended September 30, 2025, `Net income` increased to $108.2 million from $78.8 million in 2024, primarily due to a decrease in provision for credit losses. `Finance charges` also increased by 6.3% to $539.4 million. However, `Consumer Loan` assignment unit and dollar volumes declined by 16.5% and 19.4%, respectively. The company forecasts a decline in collection rates, decreasing forecasted net cash flows from the loan portfolio by $58.6 million, or 0.5%. For the nine months ended September 30, 2025, `Net income` was $301.9 million, up from $96.0 million in 2024, with similar drivers as the three-month period. The company repurchased shares worth $534.0 million during this period. However, forecasted collection rates declined, decreasing forecasted net cash flows by $135.3 million, or 1.2%. The company acknowledges challenges in forecasting collection rates accurately, especially during volatile economic periods, and highlights adjustments made to forecasting methodologies and advance rates. Total balance sheet indebtedness as of September 30, 2025, was $6,369.0 million. Management believes that cash flows from operations and financing alternatives will provide sufficient financing for debt maturities and future operations.

The Credit Acceptance Corporation's Q2 2025 earnings call presents a mildly bearish outlook. While the loan portfolio reached a record high of $9.1 billion, 'loan performance declined this quarter' with the 2022, 2023, and 2024 vintages underperforming expectations, leading to an overall decrease of 0.5% in forecasted net cash flows. The company's market share also decreased from 6.6% to 5.4%. Management attributes the underperformance to the continued impact of inflation and challenges with the 2024 loans originated before a scorecard change. Although the loans originated after the Q3 2024 scorecard change are performing as expected, the underperformance of older vintages is a concern. Additionally, the loan size continues to decline, reflecting a 'different mix of consumer' being financed. While the company actively repurchased shares, the return on capital is only marginally above the cost of capital, raising questions about the economic profitability of some loan vintages. The competitive environment remains intense, adding further uncertainty to future performance.

CACC's financial performance demonstrates a positive trajectory over the past several quarters. Revenue has grown from $485.4 million in Q4 2023 to $582.4 million in Q3 2025, indicating strong top-line growth. The gross profit ratio, while fluctuating, has generally remained above 60%, reflecting healthy profitability, although Q3 2025 shows a ratio of 0, as does gross profit, suggesting a potential issue with cost accounting in that quarter.. Operating cash flow has been consistently positive, with $299.4 million generated in Q3 2025, reflecting strong cash generation capabilities. The company's total debt has increased from $5,067.5 million in Q4 2023 to $6,471.2 million in Q2 2025 before decreasing to $0 in Q3 2025, which is a positive sign for long-term solvency. Overall, CACC exhibits solid revenue growth, consistent cash flow, and stable profitability, making it a moderately bullish investment prospect.

The company presents a moderately bullish investment profile based on its financial data. Revenue has shown positive growth, indicating increasing market demand or successful market penetration. The gross margin is healthy, suggesting efficient cost management in production or service delivery. A strong return on equity (ROE) signals effective utilization of shareholder investments to generate profit. The price-to-earnings (P/E) ratio suggests the stock is trading at a premium, but this could be justified by the company's growth prospects and profitability. A manageable debt-to-equity ratio indicates a reasonable level of financial leverage. The current ratio, being greater than 1, demonstrates the company's ability to cover short-term liabilities with its current assets, further solidifying its financial health. Overall, the combination of revenue growth, healthy profitability metrics, and a solid balance sheet makes the company an attractive investment for the next 12 months, although the elevated P/E ratio warrants careful monitoring.