goeasy (TSX:GSY) is a TSX stock that has provided shareholders with game-changing returns in the past decade. Since March 2014, goeasy stock has returned 820% to investors. After adjusting for dividends, total returns are much higher at 1,008%.
It means a $1,000 investment in goeasy stock a decade back would be worth close to $12,000 today. Comparatively, a similar investment in the TSX index would be worth just over $2,000.
As past returns shouldn’t matter much to current and future investors, let’s see if goeasy stock should be a part of your equity portfolio right now.
goeasy stock is down 24% from all-time highs
goeasy is one of Canada’s largest non-prime consumer lenders, valued at a market cap of $2.75 billion. In the last two years, rising interest rates have led to a tepid lending environment and higher delinquency rates, making investors nervous. Despite its market-thumping gains, goeasy stock is down 24% from all-time highs, allowing you to buy the dip.
In the fourth quarter (Q4) of 2023, goeasy’s loan originations totalled $705 million, up 12% year over year. goeasy attributed the increase in lending to record credit applications, which grew 29%. The company experienced strong performance across product and acquisition channels, which includes unsecured lending, point-of-sale lending and automotive financing.
The increase in loan originations meant goeasy’s loan portfolio rose by $215 million. Its consumer loan portfolio stood at $3.65 billion, up 30% year over year. The growth in consumer loans drove top line growth for goeasy as sales in Q4 rose 24% to $338 million.
Despite an uncertain macro environment and higher lending rates, goeasy experienced stable credit performance. Its net charge-off rate in Q4 stood at 8.8%, down from 9% in the year-ago period. A stable credit performance reflects improved credit and product mix in the loan portfolio and underwriting enhancements. Moreover, goeasy’s allowance for future credit losses reduced to 7.28% in Q4 compared to 7.37% in Q3.
goeasy’s widening dividends
goeasy reported an operating income of $137 million in Q4, up 81% year over year, as operating margins improved from 27.8% to 40.6% in the last 12 months. After adjusting for non-recurring items, operating income grew 41% to $141 million in Q4. Its free cash flow also improved by 29% to $85 million in the December quarter.
A widening bottom line allows goeasy to pay shareholders an annual dividend of $4.68 per share, indicating a forward yield of 2.8%. In the last 10 years, goeasy has increased dividends by 25% annually, enhancing the effective yield significantly.
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goeasy’s free cash flow stood at $85 million, up 29% from the year-ago quarter. Comparatively, it paid dividends worth less than $20 million, indicating a payout ratio of less than 25%, providing goeasy with enough room to reinvest in growth projects and acquisitions.
What’s next for GSY stock?
Based on its balance sheet cash and revolving credit facilities, goeasy ended 2023 with $901 million in total funding capacity. It can grow the consumer loan portfolio by $250 million each year from internal cash flows, driving future earnings higher.
Priced at less than 10 times forward earnings, goeasy stock is quite cheap and trades at a discount of 23% to consensus price target estimates.
