Is it Too Late to Buy goeasy Stock?

Despite its monstrous gains, goeasy is a TSX dividend stock that trades at a compelling valuation in June 2024.

| More on:
edit Woman calculating figures next to a laptop

Image source: Getty Images.

goeasy (TSX:GSY) is one of the hottest stocks on the TSX in the last 20 years. Since June 2004, goeasy stock has returned 2,310% to shareholders. However, if we adjust for dividend reinvestments, cumulative returns are much higher at 3,960%. Comparatively, the TSX index has returned less than 400% in this period in dividend-adjusted gains.

As past returns don’t matter much to current or future investors, let’s see if it makes sense to buy goeasy stock at the current price.

An overview of goeasy

Valued at $3.1 billion by market cap, goeasy operates in the consumer lending space and offers a suite of financial services to Canadians with non-prime credit. goeasy entered the consumer lending segment in 2006 with the launch of easyfinancial. It opened its first kiosk at an easyhome leasing store in Alberta and has since broadened its range of consumer credit products.

Today, goeasy is among the largest non-prime consumer lenders in Canada, with more than 400 locations in the country. It also offers online and mobile lending platforms and point-of-sale financing in verticals such as retail, power sports, automotive, home improvement, and healthcare.

To date, goeasy has originated over $13.5 billion in consumer loans and served 1.4 million Canadians who have been denied credit by banks and other legacy lenders. Its loan portfolio recently surpassed the $4 billion milestone, less than 15 months since its loan portfolio ballooned to $3 billion. The company expects to end 2024 with a loan portfolio of $4.55 billion and forecasts a consumer loan portfolio between $5.8 billion and $6.2 billion by the end of 2026.

Solid Q1 results for goeasy

Goeasy ended the first quarter (Q1) with loan originations of $686 million, up 12% from the year-ago period. The increase in lending was driven by a record volume of credit applications, which soared 41% in the last 12 months.

goeasy experienced strong demand across product and acquisition channels such as unsecured lending and auto financing. Its operating income stood at a record $138 million, an increase of 35% from last year, indicating a healthy margin of 38.6%.

Jason Mullins, goeasy’s president and chief executive officer, stated, “During the quarter, we also bolstered our balance sheet and liquidity, with another $500 million of new capital, providing us with additional funding to support our organic growth plans. With the momentum we are experiencing in the business, we now expect to finish at the high end of our loan growth forecast for the year, further accelerating our journey to be the leading consumer lender for the over nine million Canadians with non-prime credit.”

goeasy stock is still undervalued

Analysts tracking goeasy stock expect sales to rise from $1.27 billion in 2023 to $1.5 billion in 2024 and $1.72 billion in 2025. Bay Street forecasts adjusted earnings to expand from $14.2 per share in 2023 to $17 per share in 2024 and $20.3 per share in 2025.

So, priced at 2.2 times forward sales and 11 times forward earnings, GSY stock is still cheap and trades at an 18% discount to consensus price targets. In addition to capital gains, investors should also benefit from consistent dividend hikes. In the last 20 years, goeasy has raised the dividend by 22% annually.

The company reported an operating cash flow of $77 million in Q1 of 2024 and paid shareholders roughly $20 million in dividends, indicating a payout ratio of less than 26%. This low payout ratio provides goeasy with enough room to strengthen its balance sheet, invest in acquisitions, and raise dividends further.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Cogs turning against each other
Dividend Stocks

How Interest Rate Cuts Affect REITs

Now is a good time to investigate Canadian REITs and take a position in the form of stocks or exchange…

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

3 Affordable Passive-Income Stocks That Pay Monthly

These three monthly-paying dividend stocks could boost your passive income.

Read more »

Dividend Stocks

Retirees: 2 High-Yield Dividend Stocks to Buy in July

Retirees can rely on these dividend stocks for steady passive income and high yields.

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

CPP Benefits Not Enough? This Top Dividend Stock Can Help Fund Your Retirement

Dividend stocks like Fortis Inc (TSX:FTS) have funded many a retirement.

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Dividend Stocks

The Ultimate TSX Stock to Buy With $1,000 Right Now

Once at triple-digit prices, Nutrien stock (TSX:NTR) now offers a steal of a deal for long-term growth as well as…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

Set and Forget: 1 Dividend Stock That Could Create $1,000 in Tax-Free Passive Income in 10 Years

Enbridge operates a low-risk business that has allowed the TSX dividend giant to raise its payout by 10% annually since…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Passive Income: How to Make $106 Per Month Tax Free

Holding quality, high-yield dividend stocks such as Freehold Royalties in a TFSA can help you earn tax-free income for life.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Earn a TFSA Paycheque Every Month and Pay No Taxes on it

Stocks like First National Financial (TSX:FN) pay you monthly. You can also earn monthly dividends through portfolio diversification.

Read more »