goeasy (TSX:GSY) stock has experienced significant fluctuations this year. Despite this volatility, goeasy stock is a buy near the current levels, and there are solid reasons for that. Let’s delve into goeasy stock to understand why investors should capitalize on the weakness in goeasy stock. But before that, let’s look at what the company does and why its stock is underperforming the broader markets this year.
What does goeasy do?
goeasy is the leader in Canada’s non-prime lending sector. The company offers non-prime leasing and lending services through its easyhome, easyfinancial, and LendCare brands. goeasy provides a wide range of financial products encompassing unsecured and secured installment loans and merchant financing. Furthermore, goeasy also offers lease-to-own merchandise options.
Why is goeasy stock underperforming?
Despite the challenging macroeconomic conditions, goeasy has consistently delivered strong financial results and impressive earnings growth. However, concerns about the high interest rate environment and its potential impact on loan originations have kept investors cautious.
Investors should note that goeasy has managed to sustain healthy growth in its consumer loan portfolio and continues to experience robust loan origination rates. Additionally, the company maintains a solid credit profile and consistently enhances shareholder value through regular dividend distributions.
Given this context, let’s examine the factors underpinning my optimistic view of goeasy’s stock.
A top growth stock to own
goeasy is an enticing option for investors looking to invest in growth stocks. It’s worth noting that goeasy’s revenue and EPS (earnings per share) have grown at a CAGR (compound annual growth rate) of 17.7% and 29.5% in the past decade.
Moreover, the subprime lender has exhibited impressive growth in recent years. For example, its top revenue grew at a CAGR of 19.44% in the past five years (till June 30, 2023). goeasy’s EPS increased at a CAGR of 31.91% during the same period.
Thanks to its solid financials, goeasy stock handily surpassed the broader markets with its growth. To illustrate, goeasy stock grew at a CAGR of over 25% in the past decade, generating a return of about 872%.
Growth to sustain for goeasy
Despite the challenging operating environment, goeasy continues to witness record loan originations, led by solid demand and increased volume of credit applications. This shows the resiliency of its omnichannel platform.
During the most recent quarter, goeasy produced record loan originations of $667 million, up 6% year over year. Thanks to the higher originations, its consumer loan portfolio increased by 35% to $3.20 billion.
While higher loans support its top line, robust credit and payment performance and improved efficiency drive its profitability. It’s worth highlighting that goeasy achieved a commendable 300 basis point enhancement in its efficiency ratio during the second quarter.
In the foreseeable future, high loan originations, a robust credit portfolio, and optimized operational efficiency will likely drive its revenue and profit margins, consequently bolstering its share price. Furthermore, goeasy’s growing earnings base is anticipated to support forthcoming dividend distributions. It’s worth highlighting that goeasy stands as one of the top dividend-paying stocks in Canada, consistently delivering uninterrupted dividends for 19 consecutive years and marking nine years of successive increases.
Bottom line
goeasy’s strong fundamentals, large addressable market, rapid growth, and strong dividend payments make it a compelling stock. Further, goeasy stock is trading at the next 12-month price-to-earnings multiple of seven, which appears highly attractive given its solid double-digit earnings growth and a dividend yield of 3.6%.
