Companies in the financial lending space are trading significantly below all-time highs as investors are worried about a sluggish macro environment and the high cost of debt. Moreover, the banking crisis south of the border has exacerbated the sell-off, but it also makes these stocks attractive to value investors.
Here are two such undervalued TSX stocks investors can buy this month.
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EQB stock
Currently trading 20% from all-time highs, EQB Inc. (TSX: EQB) is valued at a market cap of $2.5 billion. The mid-cap TSX stock offers personal and commercial banking solutions to Canadians, returning 324% to shareholders in the last decade. Despite its outsized gains, EQB offers shareholders a dividend yield of 2.2%.
While EQB is part of the cyclical banking sector, its dividends have increased by 14% annually since May 2008, showcasing the resiliency of its balance sheet.
Analysts expect EQB to increase sales by 40% to $1 billion in 2023. Comparatively, adjusted earnings are on track to rise 16% to $10.63 per share this year. A majority of this growth can be attributed to EQB’s acquisition of Concentra Bank. However, EQB also aims to enhance shareholder value by focusing on diverse funding sources and risk-managed lending growth.
While a challenging macro environment might impact lending demand, interest rate hikes will allow EQB to increase earnings by 19.5% annually in the next five years. Given these estimates, EQB stock is among the cheapest TSX stocks, priced at just six times forward earnings.
Analysts covering EQB stock also remain bullish and expect shares to surge over 30% in the next 12 months.
Goeasy stock
Another TSX stock that has delivered outsized gains to investors is Goeasy (TSX: GSY). In the last 10 years, GSY stock is up a staggering 1,350%, while these returns increase to 2,110% over two decades. But the broader market sell-off has also dragged GSY stock lower by 50% from all-time highs.
At the current price, Goeasy is valued at eight times forward earnings, which is very cheap as Bay Street expects adjusted earnings to rise by 12% annually in the next five years. Goeasy also offers investors a tasty dividend yield of 3.5%, and these payouts have risen by 17% year over year since May 2005.
Goeasy has originated $10.7 billion in loans to date, making it one of the largest non-prime lenders in the country. The prime lender has served 1.3 million Canadian customers by providing credit access to the “unbanked.”
Goeasy is equipped with robust underwriting practices allowing it to increase its top-line at an attractive but sustainable pace. In fact, sales have grown by 17.7% each year from $200 million in 2012 to $1 billion in 2022. Since 2012, its net income has also risen 29% annually, while the average return on equity since 2017 is about 26.5%.
Goeasy expects its consumer loan portfolio to surpass $4 billion by 2024, as it is still in the early stages of geographic expansion. GSY remains a compelling TSX stock, given its cheap valuation and solid financial metrics.
Analysts tracking Goeasy stock expect shares to surge over 50% in the next 12 months.
