Shares of goeasy (TSX:GSY) jumped on Nov. 8 after the company reported record earnings in its third quarter. The finance stock climbed almost 7% before coming back down slightly. Yet investors may wonder why it didn’t do more.
What happened?
Amidst higher interest rates creating lower loan originations, goeasy stock hasn’t seen any problem. goeasy stock reported loan originations of $722 million in the quarter, up 13% compared to the same time last year.
Moreover, its loan portfolio grew 33% to $3.43 billion in the quarter, with revenue climbing 23% to $322 million. Diluted earnings per share (EPS) were up 35% to $3.87, driven by a record volume of applications for credit.
This led to record growth in the company’s loan portfolio of $230 million, which, in turn, increased revenue. Furthermore, despite all this turmoil, the company continued to see stable credit and payment performance.
Why didn’t it climb?
The earnings were great, and records are always wonderful, but perhaps investors were hoping for a bit more. That’s despite the company beating earnings estimates for yet another consecutive quarter. Perhaps the reason could be that goeasy stock didn’t provide another update on guidance, despite all this loan growth. Furthermore, the company gave no idea of when it believes it’ll be able to lower interest rates.
Then there’s the fact that the government’s changes recently could still weigh on goeasy stock. Management was positive about the changes, but it remains to be seen after the first year or so that the economy returns to normal — and with it, goeasy stock.
Then there’s the fact that goeasy stock just has a volatile past. The company surged in share price before crashing amidst the selloff before the market started to drop. It could simply be that investors are fearful to get back into the fray.
Watch out
Analysts have yet to weigh in on the new results as of writing. However, some did have opinions before earnings came out. Ahead of third-quarter results, some reiterated that the stock is a buy, with the average consensus price target at $174. As of writing, shares trade at just $125. That would mark a potential upside of 39%.
The reason for such great prices? The stock is boring, in the words of one analyst, which they like. It continues to have stable credit trends and strong guidance. goeasy stock should continue to put in the rate cap implementation from the government through to July 2024. This should actually weed out other companies that cannot keep up and bring them over to goeasy stock.
It now offers an attractive compound annual growth rate of 18% over the last two years, and it could offer more in the near future. So, consider putting goeasy stock on your watchlist, if not in your portfolio. When the market begins to recover, it could surge once again as we head into a bull market, even by next year.
