Why goeasy Stock Has Surged 100% in 2021

goeasy (TSX:GSY) stock has more than doubled year to date but continues to trade at an attractive valuation.

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One of the top stocks on the TSX, goeasy (TSX:GSY) has returned over 100% to investors in the first nine months of 2021. This Canadian company has, in fact, been a solid wealth creator for long-term investors, generating 786% in dividend-adjusted returns in the last five years. Since October 2011, GSY stock has risen an astonishing 3,760%, dwarfing the broader market returns in this period.

Let’s see what has driven goeasy stock higher in 2021 and if it remains a top stock at current levels.

An overview of goeasy   

goeasy is a company headquartered in Ontario that provides prime leasing and lending services through brands such as easyhome, easyfinancial and LendCare. It offers a wide portfolio of financial products and services that include lease-to-own merchandise, personal loans, home equity loans, and auto loans.

Customers can easily conduct transactions via goeasy’s omni-channel model that comprises a mobile and online platform. goeasy has over 400 locations across Canada, and its point-of-sale financing solutions are offered across verticals such as retail, automotive, healthcare, and home improvement.

goeasy has already served over a million Canadians and originated $6.7 billion in loans. Around 33% of its easyfinancial customers have graduated to prime credit, and 60% of these customers have increased credit scores within 12 months of borrowing.

goeasy has managed to increase its sales from $405 million in 2017 to $652 million in 2020. Its operating income has risen from $155 million to $351 million in this period while normalized EBITDA has more than doubled from $196 million to $412 million.

We can see the stellar growth in GSY stock has been on the back of robust top-line and earnings expansion.

What’s next for GSY stock?

Since 2001, goeasy’s revenue has risen at an annual rate of 12.8%, while its net income has increased by 31% annually. Bay Street analysts expect sales to rise by 27% to $830 million in 2021 and by 22.4% to $1.02 billion in 2022. Comparatively, its earnings per share are expected to rise by 38.7% to $10.5 in 2021 and by 19% to $12.46 in 2022.

We can see that GSY stock is valued at a forward price-to-sales multiple of 3.6 and a price-to-earnings multiple of 17.8, which is quite reasonable given its growth forecasts. goeasy also offers investors a dividend yield of 1.4% and has increased these payouts at an annual rate of 39.5% in the last five years.

goeasy recently completed the acquisition of LendCare, which is viewed to be highly complementary and meaningful, as it increases the company’s scale while extending its product line for customers. The acquisition expands goeasy’s POS channel into 3,000 additional merchants, enabling GSY to gain traction into verticals such as powersports, home improvement, and health care.

The buyout also improves and diversifies goeasy’s overall risk profile with higher-quality near-prime borrowers and secured loans.

The Foolish takeaway

Despite its staggering gains in the last decade, goeasy stock is trading at an attractive valuation. It might underperform the broader markets if they turn bearish, but we also know that timing the equity market is impossible. Investors should view every market correction as a buying opportunity and continue to build their position in this undervalued growth stock.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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