I will be honest; I certainly didn’t see this coming: goeasy (TSX:GSY), one of my favourite growth stocks, has taken a beating over the past couple of months. After handily outperforming the TSX and its peers throughout the majority of the year, the bottom has fallen out. Its stock is now down 10% for the year and is trading almost 40% below its yearly high.
What’s the issue? Here is the inexplicable — there is no issue with the company. goeasy’s share price is being unfairly dragged down by macro uncertainties. goeasy’s investment thesis is the exact same as it was a year ago — strong growth driven by impressive results.
You know the market has overreacted when the company’s insiders are scooping up shares like hot cakes. Since its share price cratered in November, there have been dozens of purchases by insiders on the open market.
In fact, all members of the senior management team and five board members collectively purchased a total of 213, 995 shares. The total value of the transactions eclipsed $8.5 million for an average of $39.93 share.
Talk about a vote of confidence. Such commitments are rare and demonstrate that there currently exists a great value opportunity. Of note, over the past year there hasn’t been a single insider that has sold shares on the open market. This is in spite of its share price hitting record highs earlier this year.
A top growth stock
goeasy is one of the fastest-growing financial stocks on the Index. Over the past five years, it has grown earnings per share by a compound annual growth rate of 21.6%. Through the first nine months of 2018, it has a robust return on equity of 21.2%.
Since 2011, it has never missed guidance and has a 17-year streak of growing revenue. The company recently made some strategic decisions to enter the Quebec market and a new segment of Canada’s non-prime consumer lending segment — both of which have contributed to a record-high asset base of $985 million as of September 30, 2018.
The company expects to achieve 18% annual revenue growth through 2020, which is now fully capitalized and funded. Analysts are bullish and expect sales and earnings growth of 22% and 54% in 2019.
goeasy’s stock valuation
Thanks to the recent downturn, goeasy’s stock is now ridiculously cheap. It is trading at a forward price-to-earnings (P/E) ratio of 8.10, and its P/E-to-growth (PEG) ratio of 0.26 is one of the lowest on the TSX Index. A PEG ratio under one signifies that the company’s share price is not keeping up with its expected growth rates. It is thus considered undervalued.
Analysts are also very bullish, as all five covering the company rate it a buy with a one-year price target of $61.17. This implies 82% upside from today’s share price.
There is currently no better value play on the TSX. goeasy’s management has an impeccable track record of delivering results, and it’s only a matter of time before the stock jumps back to more reasonable valuations. The company is a screaming buy!