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.
