Many investors naturally want to buy growth stocks in hopes that they can grow and increase their capital as quickly as possible. And while that’s certainly one reason to buy high-quality growth stocks like goeasy (TSX:GSY), it shouldn’t be the only consideration.
For example, it’s much better to buy a company that might have slightly slower growth but is consistently expanding its operations and increasing its revenue.
There are plenty of companies that can have a year or two of strong and impressive growth. However, the best investments that have the potential to grow your capital the most are stocks that can consistently do it for several years or even multiple decades, earning you a massive return on your investment.
goeasy is one of those stocks. The company is predominantly a provider of loans to non-prime consumer borrowers in Canada — a market with very little competition. This has allowed goeasy to rapidly grow its business, making it one of the best growth stocks that Canadian investors can buy.
Furthermore, in addition to the organic growth goeasy has achieved, it’s also begun to make acquisitions in recent years that have added to its long-term growth potential.
Therefore, it’s no surprise that goeasy has been one of the best and most consistent growth stocks for years.
goeasy’s financial performance
Over the last five years, goeasy’s growth has been hard to ignore. From the end of 2017 to the end of 2022, goeasy’s annual revenue more than doubled, increasing from $305 million to $637 million. That’s a compound annual growth rate (CAGR) of 15.9%. Furthermore, over that stretch, the stock experienced at least 11% growth in each year.
In addition to its revenue growth, though, goeasy has also increased its earnings substantially. At the end of 2017, its normalized earnings per share were just $2.97. That increased to $11.55 in 2022 — an increase of 288% or a CAGR of more than 31%.
Therefore, it’s clear what an impressive growth stock goeasy is and that how high the stock goes this year largely depends on how well it performs.
How high can goeasy stock get in 2023?
goeasy stock has been recovering over the last two months, up over 21% from its low in December 2022. Nevertheless, it’s still well off its highs of roughly $215 a share from late 2021.
The stock certainly has the potential to get back to those levels and eventually exceed them. The question is, when? 2023 is expected to be another year dominated by the uncertainty of the economy.
If it isn’t, though, or the stock market rebounds by the end of the year, let’s look at how high goeasy could get.
Right now, goeasy has a forward price-to-earnings (P/E) ratio of roughly 8.8 times. As of Wednesday’s close, it trades at $123.50 and is expected to have a normalized earnings per share (EPS) of $14.08 in 2023.
However, 8.8 times its forward earnings is a historically low valuation for goeasy. If it can achieve its earnings expectations and the market environment recovers, goeasy could end up trading near its historical high or at least near its long-term average.
Over the last five years, for example, goeasy has had an average forward P/E ratio of 10.7 times. If goeasy reached that this year while hitting its EPS expectations, that would push the stock to more than $150 a share.
Furthermore, the highest valuation it had over the last five years was 18.7 times earnings, which could push the stock to over $260 a share. That’s highly unlikely to materialize, especially in this environment, but it goes to show just how cheap goeasy is today and how much potential it has over the next few years, as it continues to grow its earnings at the same time that the market environment recovers.
So, if you’re looking for a high-quality growth stock to buy now while it’s undervalued, there’s no doubt that goeasy is one of the top stocks in Canada.