Credit Acceptance Corp. (CACC): Does This Outperforming Niche Company Deserve a Place in Your Portfolio?

Figure 3: Attractive Valuation, Shrinking Sharecount and Increasing Earnings and Revenue per Share for Credit Acceptance Corporation

The scatterplot below shows the realized 18 month returns of Credit Acceptance Corp. (NASDAQ:CACC) against the ten-year normalized earnings of the stock. Recently the PE10 touched a low of about 26 at a price of $105 per share. At this price, the expected 18 month return based on past performance is 71% or a target price of $180 per share by the beginning of 2015. While future returns could be lower if earnings do not continue to grow as quickly as in the past, buying the stock at this valuation has yielded excellent returns historically.  I expect that there is a high probability that Credit Acceptance will beat the market over the next year and into the more distant future.

Figure 4: 18-Month Return Vs. PE10 for Credit Acceptance

Credit Acceptance is a terrific small market company that only does one thing, but does it incredibly well. While I like my friends to have diverse interests, I like the companies that I invest in to be laser-focused on what they do best. Credit Acceptance Corp. (NASDAQ:CACC) is a piranha in a small pond and they are going to prove very tough to beat on their home turf.

The article Does This Outperforming Niche Company Deserve a Place in Your Portfolio? originally appeared on Fool.com and is written by Brendan O’Boyle.

Brendan O’Boyle has a position in Credit Acceptance Corporation. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Brendan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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