Yields on the two-year and five-year Treasury recently fell to fresh record lows as the fed funds fu...
Credit Acceptance: A Peter Lynch-Style Favorite
06/12/2019 5:00 am EST
For the model portfolio at Validea, editor John Reese selects stocks based on the long-term strategies of many of the stock market's most legendary investors. His latest addition earns a 100% rating based on the price-to-earnings growth strategy of famed fund manager Peter Lynch.
Credit Acceptance (CACC) offers financing programs that enable automobile dealers to sell vehicles to consumers. Its financing programs are offered through a network of auto dealers; its target market includes some 60,000 independent and franchised automobile dealers in the United States.
DETERMINE THE CLASSIFICATION:
This methodology would consider CACC a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (14.53) relative to the growth rate (24.99%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for CACC (0.58) makes it favorable.
SALES AND P/E RATIO: PASS
For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. CACC, whose sales are $1,344.0 million, needs to have a P/E below 40 to pass this criterion. CACC's P/E of (14.53) is considered acceptable.
EPS GROWTH RATE: PASS
This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years.
This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for CACC is 25.0%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good.
TOTAL DEBT/EQUITY RATIO: NEUTRAL
CACC is a financial company so debt to equity rules are not applied to determine the company's financial soundness.
EQUITY/ASSETS RATIO: PASS
This methodology uses the Equity/Assets Ratio as a way to determine a financial intermediary's health, as it is a better measure than the Debt/Equity Ratio. CACC's Equity/Assets ratio (30.00%) is extremely healthy and above the minimum 5% this methodology looks for, thus passing the criterion.
RETURN ON ASSETS: PASS
This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. CACC's ROA (10.07%) is above the minimum 1% that this methodology looks for, thus passing the criterion.
Related Articles on FINANCIALS
Regional bank Synovus Financial (SNV), with branches and ATMs in Georgia, Alabama, Tennessee, South ...
With an unfavorable interest rate environment and expected weak demand for credit, banking stocks do...
Bank OZK (OZK), previously Bank of the Ozarks, is a regional bank in Arkansas, Florida, North Caroli...