As earnings season is upon us, we have been getting a great look into a number of high-quality earnings and some not-so-great results. The economy continues to plug away, and despite worries of a recession earlier this year and a possible market crash, those have subsided considerably.
Although the fears aren’t gone completely, and investors should still remain diligent, missing out on upside in the market could be a major missed opportunity, so looking at the new earnings numbers and finding diamonds in the rough would be the ideal strategy in today’s environment.
First Capital is a real estate developer, owner, and operator that owns most of its assets in highly populated urban areas.
In its most recent earnings, it was clear that the company has grown or kept its numbers consistent, while going through the disposition phase. Revenue, net operating income, and funds from operations per share all grew modestly.
This is a positive sign and shows the company’s core operational strength.
Its present strategy is to continue its development of mixed-use real estate in highly populated areas, while also making strategic dispositions of some non-core assets.
This, it hopes, will help to delever the balance sheet and allow it to refocus on its bread and butter: targeted and integrated development in high-growth neighbourhoods.
Its entire portfolio and the growth that it expects rely on increased traffic, which is easiest to gain through population growth.
This is why First Capital has been working so hard to get its portfolio as optimized as possible. Currently, it estimates more than 90% of its portfolio is within five minutes of public transit, which is very high.
This has been helped by its creation of super urban neighbourhoods, which has driven the population within five kilometres of its portfolio — up considerably in the last few years.
It returns cash to shareholders through a dividend that yields nearly 4% and so far year to date, has a payout ratio that’s only 68% of funds from operations, which is promising, especially because the company has reduced its payout ratio by 14% in the last five years.
As long as it can continue its dispositions and create more flexibility for itself, there shouldn’t be any issues going forward, and its growth potential will be uncapped.
While goeasy actually missed analyst estimates, its earnings weren’t bad, because the significant factors were positive.
It did miss some consensus numbers on the bottom line due to increased operating expenses in the quarter, but this will have no bearing on goeasy’s long-term performance.
The rest of the earnings seemed to be more of the same from goeasy: continued loan growth and strong operations that are stable.
Since the launch of its consumer lending company easyfinancial roughly a decade ago, goeasy’s business has exploded, and since 2010, its earnings per share are up more than 500%, while its total shareholder return since 2001 is north of 6,500%.
As of the most recent quarter, in the last 12 months, 77% of goeasy’s revenue came from easyfinancial, while the remaining 23% came from easyhome.
In terms of operating income, though, easyfinancial did nearly 90% of total operating income, showing its impressive margins and why management has focused on growing the consumer lending side of the company.
In a business such as goeasy’s, where you are lending money to non-prime borrowers, it’s essential that companies can manage their risk well, and goeasy is a model operator.
It continuously keeps its net charge-off rates consistent and has actually decreased it modestly over the last few years, as its loan book continues to expand rapidly.
Once again, goeasy reported strong earnings and growth numbers that are extremely attractive. It’s stock is up more than 60% year to date, and I wouldn’t expect it to slow down anytime soon.
Although one earnings season doesn’t make or break a company, both of these companies have long-term track records of success and execution.
The positive earnings this quarter only confirm what is already known: these are two of the top growth companies on the TSX.
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Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool recommends FIRST CAPITAL REALTY INC.