Welcome to a multi-part series where I break down the fundamentals of some of the most popular TSX listed stocks out there! Up today is goeasy (TSX:GSY), a Canadian alternative lending platform.
Although a top performer in 2021, goeasy has fallen on hard times recently, having lost -20% of its share price year to date. Many Canadians who bought goeasy around its 52-week high of $218.35 per share are nursing heavy losses right now, with the stock currently trading at $140.28.
Background
GSY provides non-prime leasing and lending services to consumers in Canada, operating through two segments, Easyfinancial and Easyhome.
Easyfinancial provides unsecured and real estate secured installment loans; personal, home equity, and auto loans; point-of-sale and small business financing; and value-added services, while Easyhome leases household furniture, appliances, electronics, computers, and provides unsecured lending products to retail consumers.
Fundamentals
GSY is a growth stock, so we want to focus on metrics that attempt to measure the rate and consistency by which the company improves its revenue, earnings, and profitability.
Recently, goeasy experienced growth in its revenue by 0.09% for the past 12 months, which is remarkably flat compared to its pandemic highs. For many growth stocks, flat trends like this are a warning sign that the company may be unable to meet the expectations of the market.
When it comes to operations, goeasy experienced a deterioration in its operating cash flow per share by -1.94% over the past five years. We also saw the company’s operating income increase by -0.21%, and its EPS increase by 2.16% over the fiscal year, which is not quite what we want from a growth stock.
When it comes to profitability, GSY currently has an operating profit margin of 55%, net profit margin of 32%, return on equity of 38.26%, and return on assets of 9.87%, which are healthy.
Valuation
I don’t have the time or space here to do a full discount cash flow analysis, but we can eyeball various valuation metrics for goeasy to get a sense of what the intrinsic value of the stock should be.
GSY is currently trading with an enterprise value to EBITDA multiple of 9.01 and an enterprise value of approximately $4.08 billion, which is average compared to peers in the financial sector and certainly more reasonable than that of the Big 5 Banks.
As of last year, the book value per share for goeasy is $48.14, with a price-to-earnings ratio of 10.93, price-to-sales ratio of 3.48, and price-to-free-cash-flow ratio of -49.15. These are all very reasonable except the price-to-free-cash-flow ratio, but otherwise imply a fair current valuation.
The Foolish takeaway
The 52-week low for GSY is $121.25, which is a useful technical indicator for determining resistance levels or a potential bottom. In my opinion, I think goeasy is due for a rebound. The stock currently looks oversold, especially after the broad market sell-off last month.
Despite the rising interest rate environment, goeasy’s fundamentals are solid, and the stock has fallen quite significantly from all-time highs. Investors looking for a growth play in the TSX financial sector can consider establishing a position in goeasy at its current price.
