Andrew Left, a short-seller known for accurately predicting significant market downturns, has made a surprising turn in his investment strategy this week, adopting a bullish stance on Credit Acceptance Corporation, a subprime auto lender. His firm, Citron Research, published a recent report detailing this shift, asserting that the company has fundamentally changed and is now positioned for potential gains.
In the report, Citron Research argues that Credit Acceptance’s stock has a fair value estimated at $714 per share, which represents an impressive 40% increase over its current trading levels. Having maintained a negative outlook on the stock for several years, Left cited the resolution of various regulatory challenges as a trigger for his optimistic revision. Specifically, he highlighted the recent simultaneous resolution of matters involving the New York Attorney General and the Consumer Financial Protection Bureau, signaling that the ‘discount’ which has been dragging the stock down for three years has finally lifted. “The market hasn’t noticed yet,” he remarked on a social media platform, indicating his belief in a coming correction to the stock’s undervaluation.
The report delved into the lingering controversies surrounding Credit Acceptance, particularly the association of subprime lending with the financial crisis. Left acknowledged these historical connotations but defended the company’s vital role in the financial ecosystem. He noted that Credit Acceptance provides essential financing to individuals with poor credit, enabling them to purchase vehicles necessary for employment. “The customer has a choice. The customer needs transportation,” he wrote, highlighting that the firm fills a critical gap in the lending market.
Left also pointed out that Credit Acceptance demonstrates robust cash generation capabilities. “It does not hide it, does not dress it up, and does not apologize for it. Judge the ethics however you like. The cash flow is real,” he stated, emphasizing the tangible financial strength of the company. Furthermore, he indicated that the clientele of Credit Acceptance tends to be those struggling financially, suggesting that even in a downturn, their situation may not significantly worsen due to their existing reliance on subprime loans for mobility.
Addressing broader economic trends, Left noted that Credit Acceptance has weathered multiple recessions since it began operations in 1992—including downturns in 2001, 2008, and 2020—without encountering substantial operational disruptions. “The business keeps printing cash,” he remarked, dismissing bearish sentiments surrounding the recession that have been prevalent in recent discussions about the market.
Prior to this bullish outlook on Credit Acceptance, Left has primarily focused on short positions in leading technology companies, including AI-focused Palantir and memory storage provider SanDisk. This shift represents a notable departure from his recent investment strategies, suggesting that the subprime auto lending sector may offer more lucrative opportunities in the current market environment.
