Credit Acceptance

Credit Acceptance Corp receives a 3-star quantitative star rating, reflecting our opinion that this share class is a balanced choice, but prudent investors should consider looking elsewhere. The stock currently trades at a price consistent with our quantitative fair value estimate, which has a medium uncertainty rating.

The company's profitability increases our estimated valuation. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. For example, the firm's earnings yield of 10.3% falls in the top 20% globally. This suggests that it is generating substantial earnings relative to its share price, which contributes to our balanced fair value estimate.

The firm's balance sheet is an additional encouraging factor. Low leverage mitigates financial risk, potentially boosting a firm's value. The firm's current ratio of 21.3, a core component of leverage, falls in the top 10% globally. We have little concern about this company's ability to cover near-term obligations, thanks to its relatively high current ratio; this could be a compelling signal during times of distress, which further promotes our neutral price/fair value ratio.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has outperformed the broader universe over the past year. While we believe the stock is fairly-valued, this outperformance had a negative impact on our valuation estimate.

The narrow moat rating for this company indicates investors can expect it to generate 10 years or more of excess returns on capital due to its respectable competitive advantages. In addition, the company's moderate financial health score is decent and doesn't seriously concern us with regard to financial distress.