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Rating Change Detail - CREDIT ACCEPTANCE CORP. (CACC) - 2/6/2010
The stock was upgraded from No Interest to Strong Interest on 2/6/2010 by the P/E/Growth Investor Strategy based on the principles of Peter Lynch. The score according to this strategy rose from 72% to 93%. A full detailed analysis of CACC using this strategy is included below. For a full detailed analysis of CACC using 12 proven strategies of Wall Street Legends, take a free trial to Validea.com

Detailed Analysis of CREDIT ACCEPTANCE CORP. (CACC)

Strategy: P/E/Growth Investor - Based on: Peter Lynch

DETERMINE THE CLASSIFICATION:

This methodology would consider CACC a "fast-grower".

P/E/GROWTH RATIO: [PASS]

The investor should examine the P/E (9.24) relative to the growth rate (31.62%), 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 (0.29) is very favorable.

SALES AND P/E RATIO: [NEUTRAL]

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 rate high enough to support a P/E above this threshold. CACC, whose sales are $380.7 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate.

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 31.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable.

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 (42.00%) 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 (12.61%) is above the minimum 1% that this methodology looks for, thus passing the criterion.

FREE CASH FLOW: [NEUTRAL]

The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for CACC (11.05%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.

NET CASH POSITION: [NEUTRAL]

Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for CACC (-29.76%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.

For a full detailed analysis of CACC using 12 proven strategies of Wall Street Legends,
take a free trial to Validea.com

Rating Change Detail - CREDIT ACCEPTANCE CORP. (CACC) - 2/6/2010

Detailed Analysis of CREDIT ACCEPTANCE CORP. (CACC)

Strategy: P/E/Growth Investor - Based on: Peter Lynch