Up 75% in 2019, This Major Growth Stock Just Got Another Increase to Its Price Target

Growth stocks that can exceed their estimates for growth are a top way for investors to grow their capital, such as goeasy Ltd (TSX:GSY) which has done this for years now and is showing no signs of slowing down.

| More on:
A close up image of Canadian $20 Dollar bills

Image source: Getty Images

The last year was a major year for markets and some of the best-performing stocks were growth stocks.

The fear in the markets toward the end of 2018 created great buying opportunities for those investors who were positioned well and investing for the long term. The buying opportunity that many investors took advantage of fuelled a major rally throughout 2019.

For growth stocks, some of the best news they can get is by exceeding their growth numbers the market sets for them, which this stock we are about to talk about did in 2019.

The other major news that helps increase the valuation of growth stocks are by getting continuous analyst upgrades, which is exactly what happened to goeasy Ltd (TSX:GSY) this past week.

Analysts at TD Bank’s securities division have been impressed with goeasy. Unlike traditional bank stocks, which they believe will struggle to grow earnings meaningfully over the near term, the analysts believe goeasy can continue to outperform.

Thus far, their estimates, which have seemed ambitious, have continually been met by goeasy year in and year out. Now their new estimate looks like it can be easily reached by goeasy.

TD Securities increased their price target from 70 to $84, a roughly 20% premium from where the stock is today.

Part of the reason for its increased target price is the increased valuation the securities division believes it warrants, now valuing it at 12.5 times forward earnings rather than 11.0 times, which it valued it at previously.

goeasy has been on a roll the last few years; its incredible track record of success is reflected by the major rally its share price has seen over the past few years, more than doubling investors’ money.

The company has been expanding its loan book rapidly while also stabilizing the business and reducing its charge-off rates. It’s also managed to make the business more profitable, growing its return on equity to roughly 25% in 2019, and expecting to exceed 26% in 2020.

Its business continues to see an increase in demand, and goeasy has figured out how to mitigate the risk in its portfolio to build a highly sustainable business.

Although it caters to mostly non-prime borrowers, the company is flexible with the loans it offers its customers, and realizes that by making more of an effort to have the loan fit the customers’ needs, there is a higher chance that it will ultimately be being paid back.

The stock may only pay out a dividend that yields 1.75% today, but it has become a dividend aristocrat for its continued growth of its dividend each of the last five years.

This is positive especially for long-term shareholders, as it retains most of its cash now while it’s still growing its business rapidly. When it decides to transition from high-growth, however, the company can then begin to pay out the majority of its earnings. Because of the track record it’s establishing for itself, it could be one of the most reliable dividend payers on the TSX.

Going forward, there isn’t too much risk associated with it; with any lending company, there’s obviously some counter-party risk and risk of a recession causing higher charge-offs.

In terms of something that would really impact investors’ holdings, however, it would take a catastrophic event to impact goeasy’s business enough that it was no longer breaking even on its loan book.

Similar to the TD Securities analysts, I also expect goeasy to be the best-performing stock of all the financials over the next few years. It’s incredible growth rate and prudent management of risk has positioned it well for the coming years, giving it the potential to double your money once again.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »