If you’re looking for value, finding companies that are significantly lower than 52-week highs can be a great place to look. And that is certainly the case with goeasy (TSX:GSY). With shares down 11% from highs, the company presents a compelling opportunity — especially for long-term holders.
So, what happened? Today, we’ll look at the reason behind the drop as well as what investors can look forward to in the future.
What happened?
The announcement that Chief Executive Officer Jason Mullins will step down at the end of the year led to a short-term dip in the stock price. However, the leadership transition should not overshadow the company’s strong fundamentals. Mullins will remain involved as a director and in the search for his successor, ensuring a smooth transition and continuity in strategic direction.
But it wasn’t easy for goeasy stock investors to swallow. That’s especially true as it comes after multiple changes from the Canadian federal government. The Canadian government has recently introduced significant changes to the annual percentage rate (APR) regulations to address predatory lending practices. The federal budget for 2024 includes measures aimed at protecting vulnerable Canadians from exorbitant interest rates and unethical lending practices.
One of the key changes is the reduction of the maximum criminal interest rate from 47% APR to 35% APR. This aligns with the rate cap currently enforced in Quebec and aims to provide a more uniform and fair lending environment across Canada. This reduction is part of a broader initiative to tackle high-interest instalment loans and title loans, which often lead to borrowers paying back significantly more than the borrowed amount.
The thing is, goeasy stock welcomed the change! In fact, the company projects it can lower its average APR to below 30% in the coming years. Let’s get into why this company remains strong right now.
Strong finances
Not just now but in the future as well. goeasy has demonstrated robust financial growth, with significant increases in both revenue and earnings. For 2023, the company’s revenue grew by 22.64% to $1.25 billion, while earnings surged by an impressive 76.87% to $247.9 million. This upward trend in financial performance highlights goeasy’s ability to effectively navigate challenging economic conditions and expand its market share.
Plus, goeasy has seen a record volume of credit applications, up 41% year over year, with loan originations increasing by 12% to $686 million. The company’s focus on non-prime lending continues to meet a critical market need, especially as consumers face economic pressures from inflation and rising interest rates.
The company’s risk profile has improved significantly by increasing the proportion of secured loans in its portfolio, which now account for 42% of total loans. This shift towards secured lending reduces risk and enhances the stability of goeasy’s financial performance.
Bottom line
Add in the value, and this company is a winner. goeasy stock now trades with a 2.5% dividend yield and at just 12.43 times earnings! So, despite the recent dip from its 52-week high, goeasy’s strong financial performance, commitment to dividends, and strategic growth in non-prime lending make it a worthy consideration for investors looking to capitalize on its current undervaluation. Yet, as always, investors should perform their due diligence and consider their risk tolerance before making investment decisions.
