Some sectors within Canada’s stock market and global stock exchanges are more sensitive to interest rate movements or changes. Banks in the financial sector are investment opportunities because rising interest rates mean increased profit margins.
Top and tough performer
Ironically, goeasy (TSX:GSY), an alternative financial services company, outperforms big bank stocks in today’s unprecedented conditions. The giant lenders have reported lower earnings and higher provisions for credit losses (PCLs) in the most recent quarters of fiscal 2023.
Performance-wise, only Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, and National Bank of Canada, or 50% of the Big Six, are in positive territory. However, their year-to-date gains are 3.76% at maximum.
Meanwhile, at $126.40 per share, goeasy is up 22.15% year to date and pays a decent 3.04% dividend. This financial stock could revolutionize the TSX with its growing earnings and stable dividends. While the current yield isn’t the highest in the market, it is higher than the 2.02% market bottom.
More importantly, there’s plenty of room for dividend growth. The dividend track record is 19 years, with nine consecutive years of dividend hikes. Also, the payout ratio is only 31.98% and the annual earnings forecast is 19.09%.
Market analysts covering the stock are bullish. Their 12-month average price target is $176.50 (+39.6%), although topping $200 per share is a strong possibility.
Impressive financial returns
The $2.09 billion non-bank lender provides non-prime loans and lease-to-own-products through client-friendly programs such as easyfinancial, easyhome, and LendCare. goeasy earnings in the last three years have been consistent, with $244.94 million in 2021 as the highest. The run rate for 2023 is around $202 million.
Record results
Investors were delighted with goeasy’s financial results in the third quarter and after three quarters in 2023. In the nine months that ended Sept. 30, 2023, revenue and net income climbed 22.2% and 55.3% to $911.95 million and $173.29 million compared to the same period in 2022.
In the third quarter (Q3) of 2023, the top and bottom lines rose 22.7% and 40.5% year over year to $321.73 million and $66.31 million versus Q3 2022. Other business highlights during the quarter were the record $722 million in loan originations and $127 in operating income, representing 13% and 39% increases from a year ago. The 19 consecutive quarters of positive income is also an incredible feat.
Increasing credit scores of Canadians
One of goeasy’s primary objectives is to help everyday Canadians increase their credit scores and be eligible for lower rates. Its president and chief executive officer, Jason Mullins, said. “During the quarter, we continued to execute on our strategy to build Canada’s leading provider of non-prime consumer credit. Record growth and reduced credit losses contributed to record earnings.”
Mullins added that the credit score of goeasy’s originations has been increasing for eight consecutive quarters, and the portfolio’s credit quality continues to improve. The encouraging part is that despite higher borrowing costs, the benefits of scale produce meaningful operating leverage while protecting margins. Mullins said it will enable goeasy to grow earnings and produce a return on equity above 20%.
Strong buy
Canadian big bank stocks remain rock-solid investments amid a challenging operating environment. However, goeasy deserves a position in every long-term investor’s portfolio. The fintech stock has yet to reach its full potential.
