Investment Thesis
Credit Acceptance demonstrates strong operational profitability (30.2% operating margin, 23.4% net margin) and excellent free cash flow generation (59.6% FCF margin), but faces elevated financial risk from high leverage (4.22x Debt/Equity) and critically low interest coverage (1.6x), leaving minimal margin for profitability deterioration. Modest revenue growth (7.2% YoY) and weak returns on equity (9%) limit expansion appeal despite solid current cash generation.
Strengths
- Exceptional operating margins (30.2%) and net margins (23.4%) demonstrate strong pricing power and operational efficiency
- Outstanding free cash flow generation ($345.5M) with 59.6% FCF margin shows business converts earnings to cash effectively
- Recent diluted EPS growth of 83% YoY indicates improved profitability and earnings accretion
Risks
- Interest coverage ratio of 1.6x is dangerously low, providing minimal buffer if profitability declines or rates increase
- Extreme leverage at 4.22x Debt/Equity combined with 6.4B in long-term debt creates financial fragility in stressed scenarios
- Slow revenue growth (7.2% YoY) and weak ROE (9%) suggest limited organic growth and modest capital efficiency
Key Metrics to Watch
- Interest coverage ratio trending higher above 2.0x to reduce financial risk
- Revenue growth acceleration above 10% YoY to validate expansion capacity
- Debt/Equity ratio trending lower toward 3.5x to reduce leverage exposure
Financial Metrics
Revenue
580.0M
Net Income
135.8M
EPS (Diluted)
$12.40
Free Cash Flow
345.5M
Total Assets
8.7B
Cash
25.7M
Profitability Ratios
Gross Margin
N/A
Operating Margin
30.2%
Net Margin
23.4%
ROE
9.0%
ROA
1.6%
FCF Margin
59.6%
Balance Sheet & Liquidity
Current Ratio
N/A
Quick Ratio
N/A
Debt/Equity
4.22x
Debt/Assets
82.6%
Interest Coverage
1.61x
Long-term Debt
6.4B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T14:37:11.255690 |
Data as of: 2026-03-31 |
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