The majority of big Canadian bank stocks ended 2023 with losses as they had to increase their allowances for bad loans due to worsening macroeconomic conditions, taking a toll on investors’ sentiments. However, some stocks from the financial services sector did not follow the downward trend last year. In fact, shares of goeasy (TSX:GSY), the Mississauga-headquartered non-prime leasing and lending services provider, jumped 48.5% in 2023, outperforming the broader market by a notable margin. By comparison, the TSX Composite Index inched up by 8.1% last year.
With this, GSY stock currently has a market cap of $2.7 billion, as it trades at $163.70 per share after advancing by 3.6% so far in January 2024. Let’s take a quick look at the main fundamental factors that have boosted goeasy stock prices in the past year before we talk about whether early 2024 is a good time to invest in it.
Why GSY stock rallied in 2023
GSY stock’s strong performance in 2023 can be attributed to several key factors. Firstly, the company’s robust, non-prime lending-focused business model has proven resilient even in challenging economic conditions. Unlike traditional banks, goeasy mainly provides small loans to a market segment that continued to demand credit facilities, driving its revenue growth.
Secondly, despite facing macroeconomic challenges and a high interest rate environment, goeasy’s profitability continued to grow at a healthy pace last year. While it’s yet to announce its December quarter results, the company’s revenue in the first three quarters of 2023 jumped 22.2% YoY (year over year) to $912 million. goeasy’s adjusted earnings in the first nine months of the year advanced by nearly 20% YoY to $10.19 per share. More importantly, its adjusted net profit margin during the same period also expanded slightly to 19.1%, reflecting the company’s improving profitability, despite economic uncertainties.
Third, unlike most traditional banks, goeasy’s allowance for future credit losses also witnessed a minor decline in the September quarter, boosting investors’ confidence. These could be the three primary factors why GSY stock outperformed the broader market by a wide margin last year.
Is now the right time to buy goeasy stock?
Before arriving at their final investment decision, long-term investors should always pay attention to a company’s financial growth trends and fundamental outlook, irrespective of its past stock performance.
Clearly, goeasy’s financial health remains strong, with consistent revenue growth and robust profit margins. This financial stability can provide a cushion against market volatility, positioning the company for sustainable financial growth in the coming years.
Besides its proactive credit and underwriting enhancements, goeasy has also benefited from improved credit and product mix of its loan portfolio in the last couple of years. In 2024, expected interest rate cuts could reduce the cost of borrowing for consumers, which could lead to higher loan demand and help goeasy’s financials continue growing at a fast pace. Considering that, I wouldn’t be surprised if GSY stock continues to outperform the broader market in the coming years as well.
Besides these positive factors, its regular dividend payouts make GSY stock even more attractive for long-term investors. At the current market price, it offers an annualized dividend yield of 2.3%.