Over the past few months, I have touted goeasy (TSX: GSY) as an undervalued, dividend growth gem. The company has met or exceeded company guidance since it first started providing a three-year outlook back in 2011, which is an impeccable record.
In anticipation of raised guidance, it was my pick for stock of the month in August. Yesterday, the company posted second-quarter results. Did it deliver? Let’s take a look.
The details
It was a record quarter for goeasy. Earnings per share (EPS) grew 30.2% year-over-year to $0.82, thereby outpacing estimates for $0.78. Likewise, revenues grew to a record 123.3 million, up 26.4% over the second quarter of 2017.
Most impressive, goeasy’s consumer loans receivable portfolio grew a whopping 121.4%! Its net charge off rate, which is the amount of debt that a company believes it will never collect, came in at 12.4%. This was at the lower range of guidance, down from 14.8% in the previous year.
The company’s easyhome segment, which has taken a backseat to easyfinancial in recent years, also posted solid results. Same store sales grew by 6.9%, the 33rd consecutive quarter of sales growth.
As expected, the company also raised its three-year outlook. It didn’t just raise sales estimates; it raised targets across the board.
At the mid-range of guidance, revenues are now expected to grow by 27% in 2018 and 21% in 2019. This is up from original targets of 17% and 15%. Margins are also expected to expand. Operating margins in 2019 and 2020 are expected to be 43% and 45%, up from 40%.
Finally, return on equity (ROE) is expected to grow by an additional 200 basis points (bps) in 2018, 400 bps in 2018 and 600 bps in 2020.
The verdict? Once again, the company delivered solid results and its growth story is very much intact.
Current valuation
Now comes the tough part. Since I first brought goeasy to your attention back in February, the company’s share price has returned 20%. Although the company is not the bargain it once was, it still offers plenty of value.
All five analysts rate the company a “buy,” and the average one-year price target is $52.00. This is 13.7% above Tuesday’s closing price.
The company is trading at a cheap forward price-to-earnings (P/E) ratio of 9.09 and a P/E to growth (PEG) ratio of 0.62. A PEG of under 1 signifies that the company’s share price is not keeping up with expected growth rates and is thus considered undervalued.
A big bank alternative
There isn’t much not to like about goeasy. Management has been as reliable as it gets. The consensus price target trend for goeasy has been in a steady upward trend since 2014.
The company pays a respectable 2.4% yield and is on the verge of becoming a Canadian Dividend Aristocrat. Goeasy is one of the best performing consumer financials and its growth rate makes it a great alternative to Canada’s big banks.
