CPSS - Consumer Portfolio Services

[DTEJD1997]

Hey all:

 

I'm an investor in NICK, which is in the same industry as CPSS.  What jumped out at me is that CPSS has a P/E of about 4.5, and is trading at 67% of book value.

 

Sub-Prime auto loans are getting hammered now.

 

I vaguely remember looking at CPSS years & years ago and passing because I thought NICK was the superior operator. 

 

However, at these levels it certainly might be worth investigating.

 

Anybody following this one?  Any thoughts?

[bobozou]

I recall that CPSS and NICK have fundamentally different business models, albeit in the same industry.

 

I don't know enough to say that NICK is a better operator, but they are FAR more conservative wrt use of leverage.

 

CPSS Risks:

1) 67% discount to book/equity is not that meaningful given the amount of leverage (imagine what a 5-10% writedown of assets would do)

2) Subprime autoloan performance is very cyclical, so 5% writedown of assets doesn't seem that outlandish (feels like peak of cycle right now)

3) With loans, it's easy to hide sloppy-underwriting with very fast growth

4) It's easy to grow if you have super high leverage

5) 3+4 combined don't give me too much comfort wrt CPSS (I have not studied management team's track record, I just know auto loan history is littered with corpses of companies that grew too recklessly thru securitized loans)

 

All in all, I'd rather buy NICK at 7PE than CPSS at 4PE, especially at this point in the cycle.  On an absolute basis, it might be a fine investment but I would never invest a significant portion of portfolio in a company in this industry, with that much leverage, at this particular time.

[ValueMaven]

I put CPSS in the 'Too Hard' pile.  I totally understand were you are coming from.  Reminds me of ASPS (which I lost a lot of $$ on)

[Guest Cameron]

Anyone still looking at this? They did a recent offering for some of their receivables that were written at 111% LTV, considering some of their other offerings had this same type of LTV's I would assume that their books look a lot like it. So they're financial receivables on an equity adjusted basis would make them insolvent. They use auto enhanced FICO score's as a way to measure consumers credit, which distorts the picture.

 

They almost went bankrupt in 1998 when subprime auto blew up and their balance sheet looked far better than it does today.

 

Also saw a new offering from DriveTime Auto with the average LTV at 170% that was sold last week. Which finances Carvana customers.

.

[DTEJD1997]

Anyone still looking at this? They did a recent offering for some of their receivables that were written at 111% LTV, considering some of their other offerings had this same type of LTV's I would assume that their books look a lot like it. So they're financial receivables on an equity adjusted basis would make them insolvent. They use auto enhanced FICO score's as a way to measure consumers credit, which distorts the picture.

 

They almost went bankrupt in 1998 when subprime auto blew up and their balance sheet looked far better than it does today.

 

Also saw a new offering from DriveTime Auto with the average LTV at 170% that was sold last week. Which finances CarGuru's.

 

There are car loans (sub-prime & otherwise) made at 170% of LTV?  wut, Wut, WHUT???

 

Nothing could possibly go wrong with that!

 

On the other hand, writing loans at 110% or 115% is certainly risky...but might not be lose the company risky.

 

I have a position in NICK (buys loans at a discount) and they've been bitterly complaining that many competitors have been acting irrational. 

 

I think we are pretty far along in the economic cycle.  When the cycle turns, these guys will have trouble.

[Guest Cameron]

CEO has been selling shares incrementally about 8.1k shares sold last week while at the same time having the company buy back shares. SECOND CURVE CAPITAL LLC has been selling as well.