Is it time to get back into sub-prime? How about sub-prime auto loans. With the economy expanding as it has been Americans are earning more. In that type of environment, credit defaults decline providing a more secure environment for the sub-prime auto loan industry. CPSS is a company that is positioned well for the economic expansion. And, it is an unbelievable bargain.
There are currently many different techniques concerning forecasting the market as a whole as well as
predicting future values of individual securities such as Consumer Portfolio. Regardless of method or technology, to accurately forecast the stock market is more a matter of luck rather than a particular technique. Nevertheless, trying to predict the stock market accurately is still an essential part of the overall investment decision process. Using different forecasting techniques and comparing the results might improve your chances of accuracy even though unexpected events may often change the
market sentiment and impact your forecasting results.
Predictive Modules for Consumer Portfolio
Sophisticated investors, who have witnessed
many market ups and downs, anticipate that the market will even out over time. This tendency of Consumer Portfolio's price to converge to an average value over time is called mean reversion. However, historically, high market prices usually discourage investors that believe in mean reversion to invest, while low prices are viewed as an opportunity to buy.
Please note, it is not enough to conduct a financial or market analysis of a single entity such as Consumer Portfolio. Your research has to be compared to or analyzed against Consumer Portfolio's peers to derive any actionable benefits. When done correctly, Consumer Portfolio's competitive analysis will give you plenty of quantitative and qualitative data to validate your investment decisions or develop an entirely new strategy toward taking a position in Consumer Portfolio.
How important is Consumer Portfolio's Liquidity
Consumer Portfolio
financial leverage refers to using borrowed capital as a funding source to finance Consumer Portfolio Services ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Consumer Portfolio financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Consumer Portfolio's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Consumer Portfolio's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the
breakdown between Consumer Portfolio's total debt and its cash.
Consumer Portfolio Gross Profit
Consumer Portfolio Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing Consumer Portfolio previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show Consumer Portfolio Gross Profit growth over the last 10 years. Please check Consumer Portfolio's
gross profit and other
fundamental indicators for more details.
Another Deeper Perspective
Consumer Portfolio Services is a consumer financial company. The company purchases contracts from auto dealerships that those dealers financed. However, the company focuses mainly on what would be considered the “sub-prime” of auto loans. The consumers that are being financed have either no credit or bad credit.
If there was any hesitation with investing in a company such as Consumer Portfolio, that is understandable. After all, wasn’t the sub-prime the reason that the financial crisis occurred? Yes. But, these are different times.
First, you cannot look at a company as just this company. What you need to do is look at the company along with the environment that it is working within. The economy is expanding. That translates into more jobs, something that we saw just this morning with the release of better-than-expected jobs data. Since more people are working this means more people are spending money from their new jobs. That creates a bigger push within the economy. There are a lot of people working only marginally, such as part-time. These individuals will be pulled into the ranks of full-time very shortly as business ramp up to meet the demands.
These marginally credit-rated consumers are going to be in a better position to pay their bills, reducing their credit risk. But, that does not mean they will necessarily sell their cars and then refinance their loans. They will be earning more and continue to pay their bills. These consumers will feel empowered to improve their credit since they are earning more. In other words, with the economy expanding I see a bigger opportunity for this company to improve its bottom line with very little risk.
But, the bottom line with CPSS is already incredibly impressive. The company’s stock is trading at roughly $5.00 per share. They have a market capitalization of $119 million, a smallish company. but, here are the earnings for CPSS over the past several years:
2012: $3.56
2013: $0.98
2014: $1.18
2015: $1.34
The company earned $1.34 in the previous year and is slated to improve upon that. I will repeat this: the stock is trading at $5.00 per share. If you bought this stock you would essentially be earning well over 25% from earnings. That is unheard of from a company that is putting out earnings at such a high ratio. The industry average is 26.91 EPS ratio.
Likewise, other metrics are below average with the company. For instance, Price to cash flow is 0.70 for CPSS whereas the industry average is 17,43. Many instances with this company the metrics fall way short of where it should be in comparison to the rest of the industry.
Considering the comparisons of this company versus the industry, at some point investors are going to stop buying stocks at such high ratios. Instead, they will start looking for bargains. CPSS is a company that fits the mold for investors to seek out and invest in. This will drive up the stock price to at a minimum the average earn gins per share price. That would push this company’s stock up to about $15.00 per share. That would be a 200% move in the stock price just to get to the stock market’s average.
The earnings on this company have been strong and will move higher given the economic landscape we are in. Plus, the bargain price makes this stock an irresistible buy. This is one stock you would want to put into your portfolio with very high expectations because once the market starts taking a hard look at this stock it will be moving.
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David Taylor is a Senior Member of Macroaxis Editorial Board - Sector Analysis. David is a professional writer who writes for multiple investment news outlets. His primary focus is dynamic movements in financial markets and effects of economic volatility on North American industries and sectors. David has many years of experience in financial service industry including working with major banks as a FX trader. In his free time, he does a lot of outdoors type activities including rock climbing, mountain biking, hiking, mountaineering and kayaking in the summer, and snowboarding in the winter.
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