CPSS

CPSS is a specialty subprime auto lender whose top line looks healthy but whose economics have quietly deteriorated. Revenue has compounded steadily ($268M→$434M over five years, +10.4% in FY2025) and the managed portfolio has grown from $2.25B to $3.90B, yet net income has collapsed from an $86.0M peak in FY2022 to just $19.3M in FY2025 — flat year-over-year and down ~78% from the top. Net margin is a thin 4.4% and ROE is only 6.2%. In plain terms, they are originating far more contracts but keeping far less of each dollar, the classic signature of a sub-prime book being squeezed by higher funding costs and credit losses in a higher-rate environment. The MD&A confirms the model: contracts are financed through 19 active securitizations structured as secured financings, which is why $3.55B of liabilities sit against $310M of equity (11.46x) — normal for the structure, but it leaves almost no cushion if unemployment rises and their limited-credit-history borrowers default.

The offset is price. At $9.62 the stock trades at ~12x FY2025 EPS of $0.80 and, more tellingly, at roughly 0.67x its $310M book value ($14.2/share). For a business earning only ~6% on equity, a discount to book is arguably fair rather than a screaming bargain — the market is correctly pricing weak returns and cyclical credit risk, not mispricing a great franchise. Retained earnings keep building (+7.2% to $286M) and management is still buying back stock ($8.67M in FY2025), which slowly shrinks the share count and supports per-share value.