CACC

We rate CREDIT ACCEPTANCE CORP (CACC) as Avoid with a composite score of 39.4/100 at a current price of $495.63. The stock falls in the bottom quintile of our universe across key quantitative factors, and the multi-factor weakness suggests a high probability of continued underperformance.

The rating is primarily driven by strength in investment (45th percentile) and value (43th percentile), which together account for the majority of the composite score. Offsetting weakness in quality (26th percentile) and stability (29th percentile) tempers our overall conviction. We assign a Narrow Moat rating (43/100), Very High uncertainty, and Standard capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

CREDIT ACCEPTANCE CORP holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 39.4/100 places it at rank #3613 in our full 7,333-stock universe. At $5.2B in market capitalization, CREDIT ACCEPTANCE CORP is a mid-cap player in the Finance, Insurance, And Real Estate space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 8%, though momentum at the 36th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 0% (-76.5pp vs sector) narrow to operating margins of 75% (+58.2pp vs sector) and net margins of 16.6%, yielding a gross-to-net conversion rate of N/A%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $495.63, CREDIT ACCEPTANCE CORP is trading near fair value based on current fundamentals. Our value factor score of 43/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 14.0x (roughly in line with the sector median of 11.9x), EV/EBITDA of 3.1x (discounted to peers), P/B of 3.5x, P/S of 2.3x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Very High uncertainty rating to CREDIT ACCEPTANCE CORP. The stock exhibits multiple compounding risk factors: significant leverage (467% debt-to-equity), below-average price stability (29th percentile), weak quality scores (26th percentile). The extreme uncertainty around future cash flows makes precise valuation difficult, and the range of outcomes is exceptionally wide. Only investors with high risk tolerance and extended time horizons should consider this name.

Specific risk factors that inform our assessment include: significant leverage (467% debt-to-equity); below-average price stability (29th percentile); weak quality scores (26th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 29th percentile and quality factor at the 26th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our very high uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate CREDIT ACCEPTANCE CORP's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 25.0%, and the balance sheet is managed within acceptable parameters (D/E: 467%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; CREDIT ACCEPTANCE CORP falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. Absent a dividend, the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, CREDIT ACCEPTANCE CORP receives a Avoid rating with a composite score of 39.4/100 (rank #3613 of 7,333). Our quantitative framework assigns a Narrow Moat (43/100, trend: stable), Very High uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 36/100.

Our analysis does not support a constructive view on CREDIT ACCEPTANCE CORP at this time. The combination of the current quantitative profile, very high uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.