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Nov 29, 2016

S3 BLACKLIGHT: Credit Acceptance: Short Interest Exposure at Historic High

Shorts have their finger on the sell button in Credit Acceptance Corp (CACC US), and aren’t letting go.  At least not until the domestic auto sector implodes, popping the subprime lending auto bubble with it.

Short interest exposure on the subprime consumer financier for automobile purchases is currently $833 million, a level that has not been breached in the stock’s history.  Looking at short interest as a percentage of float, we are estimating as much as 4.2 million shares are now on loan to short sellers, which would amount to 51% of the shares that are truly available for trading.  

Short interest had been relatively flat between 2011 through 2014, with exposure averaging $24 million over that 3-year span.   However, since the start of 2014, short interest exposure has risen significantly year-over-year.  Case in point, by the end of 2014 exposure finished the year at $79 million, up 243% from the end of 2013.  By the end of 2015, exposure finished the year at $476 million, up another 503% from the end of 2014.  Taking today’s $833 million real-time S3 short interest into account, exposure is up another 75% on a year-to-date basis for 2016, and up a whopping 3522% since the start of 2014.

Focusing in on activity since the company announced 3Q earnings on 11/1, where the share price dropped 12% and hit a 52-week low, we saw little to no buy-to-covers from shorts.  In fact, the S3 Crowding Indicator, a measure of the magnitude of real time shorting activity relative to market cap and float, displayed multiple days where demand for borrow spiked, coinciding with a subsequent pop in share price.  Meaning as the stock price rose, conviction to short sell followed suit. 

With close to 98% of lendable supply now currently being utilized; anticipate bears to stay positioned for the foreseeable future.

For more information on the above analysis, please contact:
Matthew Unterman, Director, S3 Partners, LLC    
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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