Credit Acceptance Corporation (NASDAQ: CACC) and Ally Financial (NYSE:ALLY) are both mid-cap finance companies, but which is the superior investment? We will contrast the two companies based on the strength of their valuation, earnings, analyst recommendations, institutional ownership, risk, profitability and dividends.

Insider and Institutional Ownership

72.7% of Credit Acceptance Corporation shares are held by institutional investors. 5.8% of Credit Acceptance Corporation shares are held by insiders. Comparatively, 0.2% of Ally Financial shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Risk & Volatility

Credit Acceptance Corporation has a beta of 0.5, meaning that its stock price is 50% less volatile than the S&P 500. Comparatively, Ally Financial has a beta of 1.42, meaning that its stock price is 42% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of current recommendations and price targets for Credit Acceptance Corporation and Ally Financial, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Credit Acceptance Corporation 3 5 0 0 1.63
Ally Financial 1 3 12 0 2.69

Credit Acceptance Corporation presently has a consensus target price of $209.86, suggesting a potential downside of 21.39%. Ally Financial has a consensus target price of $25.58, suggesting a potential upside of 12.95%. Given Ally Financial’s stronger consensus rating and higher possible upside, analysts clearly believe Ally Financial is more favorable than Credit Acceptance Corporation.

Profitability

This table compares Credit Acceptance Corporation and Ally Financial’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Credit Acceptance Corporation 35.13% 32.24% 8.71%
Ally Financial 13.83% 7.55% 0.63%

Earnings and Valuation

This table compares Credit Acceptance Corporation and Ally Financial’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Credit Acceptance Corporation $840.30 million 6.18 $357.05 million $18.35 14.55
Ally Financial $5.95 billion 1.83 $940.41 million $1.96 11.56

Ally Financial has higher revenue and earnings than Credit Acceptance Corporation. Ally Financial is trading at a lower price-to-earnings ratio than Credit Acceptance Corporation, indicating that it is currently the more affordable of the two stocks.

Dividends

Ally Financial pays an annual dividend of $0.48 per share and has a dividend yield of 2.1%. Credit Acceptance Corporation does not pay a dividend. Ally Financial pays out 24.5% of its earnings in the form of a dividend.

Summary

Credit Acceptance Corporation beats Ally Financial on 9 of the 16 factors compared between the two stocks.

About Credit Acceptance Corporation

Credit Acceptance Corporation offers financing programs that enable automobile dealers to sell vehicles to consumers. The Company’s financing programs are offered through a network of automobile dealers. The Company has two Dealers financing programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, the Company advances money to dealers (Dealer Loan) in exchange for the right to service the underlying consumer loans. Under the Purchase Program, the Company buys the consumer loans from the dealers (Purchased Loan) and keeps the amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as Loans. As of December 31, 2016, the Company’s target market included approximately 60,000 independent and franchised automobile dealers in the United States. The Company has market area managers located throughout the United States that market its programs to dealers, enroll new dealers and support active dealers.

About Ally Financial

Ally Financial Inc. is a digital financial services company. The Company is a bank and financial holding company. Its segments include Automotive Finance operations, Insurance operations, Mortgage Finance operations, Corporate Finance operations, and Corporate and Other. The Automotive Finance operations segment provides the United States-based automotive financing services to consumers and automotive dealers, and automotive and equipment financing services to companies and municipalities. The Insurance operations segment offers both consumer finance protection and insurance products sold through the automotive dealer channel, and commercial insurance products sold directly to dealers. The Mortgage Finance operations segment consists of the management of a held-for-investment consumer mortgage finance loan portfolio. The Corporate Finance operations segment provides senior secured leveraged cash flow and asset-based loans to mostly the United States-based middle market companies.

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