Credit Acceptance Corporation
Thesis
Credit Acceptance is facing declining loan-level returns and increasing provisions for credit losses, which will negatively impact its earnings. The company is under-provisioned compared to peers, and its current valuation suggests limited upside. We project EPS to decline by 13% over the next three years, leading to a price target of $210, which is 33% below the current stock price.
Did it work?
The thesis correctly identified declining loan-level returns and increasing provisions for credit losses, which have negatively impacted earnings. The stock price has decreased by 88.7%, significantly exceeding the projected decline and confirming the bearish outlook. The substantial drop in price relative to the target indicates that the thesis played out effectively.
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