Credit Acceptance's (NASDAQ:CACC) five-year earnings growth trails the 22% YoY shareholder returns

By
Simply Wall St
Published
March 21, 2022
NasdaqGS:CACC
Source: Shutterstock

Credit Acceptance Corporation (NASDAQ:CACC) shareholders might be concerned after seeing the share price drop 21% in the last quarter. But that doesn't change the fact that shareholders have received really good returns over the last five years. In fact, the share price is 173% higher today. Generally speaking the long term returns will give you a better idea of business quality than short periods can. The more important question is whether the stock is too cheap or too expensive today.

The past week has proven to be lucrative for Credit Acceptance investors, so let's see if fundamentals drove the company's five-year performance.

View our latest analysis for Credit Acceptance

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Credit Acceptance achieved compound earnings per share (EPS) growth of 32% per year. This EPS growth is higher than the 22% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.81.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
NasdaqGS:CACC Earnings Per Share Growth March 21st 2022

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Credit Acceptance's earnings, revenue and cash flow.

A Different Perspective

We're pleased to report that Credit Acceptance shareholders have received a total shareholder return of 42% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 22% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 3 warning signs for Credit Acceptance (1 shouldn't be ignored) that you should be aware of.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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