Down Over 35%: Should You Buy goeasy (TSX:GSY)?

The recent correction in goeasy has provided an excellent entry point for long-term investors.

| More on:
calculate and analyze stock

Image source: Getty Images

Goeasy (TSX:GSY) has delivered a robust performance over the last 20 years, with its revenue and adjusted earnings per share growing at a compound annual growth rate of 12.8% and 31%, respectively. Supported by these strong financials, the company has delivered impressive returns of over 13,500% during this period. However, this year, the company is under pressure amid the ongoing Russia-Ukraine war and the weakness in growth stocks due to the expectation of interest rate hikes.

It currently trades 36% lower than its September highs while losing 23% of its stock value since the beginning of this year alone. So, should investors buy the stock at these levels? First, let’s look at the performance in its recently reported fourth-quarter and growth initiatives.

Goeasy’s fourth-quarter performance

During the fourth quarter, goeasy generated a record loan origination of $507 million, representing year-over-year growth of 52% and sequential growth of 16%. Amid solid organic growth and acquisitions, the company’s loan portfolio increased to $2.03 billion. The growth in its loan portfolio drove its top line by 44% to $196 million. Its operating income also increased by 30% to $79.6 million, with an operating margin of 34%. However, removing special items, its adjusted operating margin stood at 36.8% compared to 35.4% in the previous year’s quarter. Meanwhile, its adjusted EPS grew 23% to $2.76.

The increase in the consumer loan portfolio, including $445 million in contributions from the acquisition of LendCare, boosted goeasy’s asset base. It closed the quarter with assets of $2.60 billion, an increase of 73% compared to the previous year’s quarter.

Goeasy’s growth prospects

Currently, goeasy has acquired just around 1% of the $200 billion non-prime consumer credit market, which is highly fragmented. So, the company has a significant potential to grow. Besides, the economic expansion amid the easing of restrictions could boost loan originations, thus benefiting the company.

Meanwhile, goeasy is expanding its product range, developing new distribution channels, and strengthening its customer relationship to increase its market share. The acquisition of LendCare has also added new industry verticles, such as power sports, health care, and home improvement. Given its high-growth prospects, goeasy’s management projects its loan portfolio to grow by over 75% to $3.6 billion by 2024.

The expansion in the loan portfolio could grow its top line at a CAGR of 15.7% while maintaining its operating margin above 35%. Supported by these strong financials, the company could deliver a return on equity of over 22%. So, its growth prospects look healthy.

Dividend and valuation

Goeasy has rewarded its shareholders by consistently raising its dividends for the last eight years. It recently raised its quarterly dividend by 38% to  $0.91 per share, with its forward yield standing at a healthy 2.64%. Given its healthy growth prospects and stable cash flows, I expect its dividends to be safe.

Amid the recent pullback in its stock price, goeasy is trading at attractive forward price-to-earnings and forward price-to-sales multiples of 2.2 and 11.6, respectively.

Bottom line

Given the weakness in the broader equity market amid the ongoing Russia-Ukraine war, I expect goeasy to remain volatile in the near term. However, investors with a longer investment time frame can accumulate the stock for superior returns. Analysts are also bullish on the stock. Seven of the eight analysts covering the stock have issued a ‘buy’ rating, with a consensus price target representing an upside potential of close to 60%.

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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.

More on Bank Stocks

Senior Couple Walking With Pet Bulldog In Countryside
Bank Stocks

A Different Bank for a Comfortable Retirement

Want a comfortable retirement? Investing in this different bank today can help you reach that goal through a solid income…

Read more »

Bank Stocks

Bank of Montreal (TSX:BMO) Raises Dividend: Is the Stock a Buy?

Bank of Montreal is about to get a lot bigger. Should you buy the stock?

Read more »

Bank Stocks

Bank of Nova Scotia (TSX:BNS) Hikes Dividend: Time to Buy the Stock?

Bank of Nova Scotia delivered strong fiscal Q2 2022 results. Is the stock undervalued?

Read more »

edit Sale sign, value, discount
Bank Stocks

2 Blue-Chip Bank Stocks Trading for a Discount Right Now

Value-seeking investors have an excellent opportunity to add these two blue-chip bank stocks to their portfolios for a discount.

Read more »

data analyze research
Bank Stocks

With a 6 Percent Yield, Time to Buy Cheap Shares of IGM Financial?

The wealth management company had record earnings, but the shares are trading at a one-year low.

Read more »

close-up photo of investor Warren Buffett
Bank Stocks

Warren Buffett’s #1 Rule in Investing: How Can Investors Apply it?

Warren Buffett's number one rule in investing is to never lose money. Here's what you can focus on to make…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

3 Cheap Bank Stocks to Buy Ahead of Earnings

Canadians should look to snag undervalued bank stocks like National Bank of Canada (TSX:NA) and others in late May.

Read more »

stock data
Bank Stocks

Annoyed With Inflation? Then Buy These 2 Bank Stocks

Rising inflation is annoying, but if you want to counter it, choose quality assets like the two biggest bank stocks…

Read more »