In Credit Acceptance Corp.’s first day of trading on June 5, 1992, the stock closed at $2.71 per share. Fast forward 17 years, and the subprime lender’s stock price is nearing the $500-per-share mark.
In its first decade of trading, CAC’s stock averaged $11.43 per share. It crossed the $20 mark in 1995 and the $100 mark in 2012. Since then, the stock has skyrocketed more than 300%. Yesterday, Credit Acceptance’s stock [ticker: CACC] closed at $489.48 per share.
Southfield, Mich.-based CAC, founded by used-car dealer Donald Foss in 1972, provides financing to franchise and independent dealers in the form of an advance against future collections. The program incentivizes dealers to facilitate better quality loans.
Here’s how it works: CAC services dealers’ loans in exchange for a 20% cut of what it collects. Dealers’ 80% share of collections, called the “dealer holdback,” is applied as repayment of the advance. Once the advance is paid off, the dealer receives the holdback.
“Simply put, we need to recover only slightly more than half of our forecasted cash flows in order for our lenders to be repaid 100% of their loans to us, including interest,” wrote Brett Roberts, chief executive, in a shareholder letter in the company’s 2018 annual report.
Here’s a look at Credit Acceptance’s average stock price since 2010:
In June, Credit Acceptance debuted at No. 1,885 on the Forbes Global 2000 List, a ranking of the world’s 2,000 largest public companies. The ranking is based on a composite score from equally weighted measures of revenue, profit, assets and market value over the latest 12 months of financial data.
Whereas many big banks typically average a 10% return on equity, CAC’s ROE has hovered in the 30% range for the past decade.
Here’s a comparison of Credit Acceptance’s return on equity versus with the average ROE for all U.S. banks, based on data from the Federal Reserve Bank of St. Louis: