WHY DID AEI STOCK DROP?

Since its peak of $41.64 on June 7th, 2022, AEI stock has dropped over 50% to close at $19.17 on November 22nd, 2022, erasing a whopping $12 billion in shareholder value. What caused this precipitous decline, and should investors be worried?

SUBPRIME AUTO LOANS
AEI's core business is auto financing, and they have a substantial portfolio of subprime auto loans. These loans are made to borrowers with poor credit scores, who are more likely to default.

When the economy is strong, subprime borrowers can often keep up with their payments. However, when the economy weakens, as it has in recent months, these borrowers are more likely to fall behind. This leads to higher default rates and losses for AEI.

RISING INTEREST RATES
Another factor weighing on AEI stock is the rising interest rate environment. The Federal Reserve has been raising interest rates in an effort to tamp down inflation. This makes it more expensive for AEI to borrow money, which increases its cost of funds.

In addition, higher interest rates make it more expensive for AEI's customers to repay their loans. This could lead to an increase in defaults and losses for AEI.

LOAN APPROVALS
When the economy is good, people are more likely to buy cars, leading to more auto loan applications for AEI. However, when the economy slows down, the number of car sales declines, and consequently, the number of auto loan applications decreases. As a result, AEI has fewer new customers to offset the losses from its existing subprime loan portfolio.

In addition, AEI has been tightening its lending standards in response to the rising risk of defaults. This means that even if the economy were to improve, it would take some time for AEI to rebuild its loan portfolio.

COMPETITION
The auto finance market is highly competitive, with a number of large banks and credit unions offering similar products as AEI. This competition has been intensifying in recent years, as more lenders have entered the market offering lower interest rates and more flexible terms.

WHAT SHOULD INVESTORS DO?
The recent decline in AEI's stock price has created an opportunity for investors who are willing to take on some risk. However, it's important to remember that AEI's stock is still trading at a significant premium to its book value, and there are a number of risks that could further weigh on the stock price.

Investors who are considering buying AEI stock should carefully consider the company's fundamentals, as well as the overall economic outlook. If the economy continues to deteriorate, AEI's stock price could fall further. However, if the economy improves, AEI stock could rebound significantly.

FAQs
1. Why did AEI stock drop so much in 2022?
The decline in AEI's stock price was largely due to concerns about its subprime auto loan portfolio, rising interest rates, and the competitive auto finance market.

2. Is AEI stock a good investment now?
AEI's stock price is currently trading at a significant premium to its book value, and there are a number of risks that could further weigh on the stock price. However, if the economy improves, AEI stock could rebound significantly.

3. What is the future of AEI stock?
The future of AEI stock will depend on a number of factors, including the health of the economy, the performance of its subprime auto loan portfolio, and the competitive landscape of the auto finance market.

4. What are some of the risks associated with investing in AEI stock?
Some of the risks associated with investing in AEI stock include the risk of default on its subprime auto loans, the risk of rising interest rates, and the risk of competition from other lenders.

5. What is the potential upside for AEI stock?
The potential upside for AEI stock is significant, as the company could benefit from an improving economy, a reduction in its subprime auto loan losses, and a weakening of its competition.