goeasy (TSX:GSY) reported an impressive second-quarter performance earlier this month, with record loan originations and solid top and bottom-line growth. After reporting its second-quarter performance, the company revised its three-year guidance. Let’s assess its second-quarter performance and growth prospects to decide whether goeasy would be a buy at these levels.
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goeasy’s second-quarter performance
In the June-ending quarter, goeasy generated $827 million in loan originations, a 24% year-over-year increase. Record loan applications amid rising credit demand and solid performance across several product and acquisition channels drove its loan originations. These loan originations increased its loan portfolio to $4.14 billion, representing a 29% increase from the previous year’s quarter.
Amid the expansion of its loan portfolio, its top line grew 25% to $378 million. It experienced a stable credit and payment performance during the quarter, with its annualized net off charge stood at 9.3%, within the management’s guidance of 8-10%. The allowance for future credit losses also fell from 7.38% in the first quarter to 7.31%.
Further, goeasy generated an operating income of $147 million. However, removing special or one-time expenses, its adjusted operating income stood at $153 million, representing a 34% increase from the previous year’s quarter. Also, its adjusted operating margin expanded from 37.7% to 40.5%. Its efficiency ratio, which measures its noninterest expenses to revenue, improved from 31.2% to 26.9%.
Amid top-line growth and improvement in operating performances, goeasy posted an adjusted EPS (earnings per share) of $4.10, representing a 25% increase from $3.28 in the previous year’s quarter. Now, let’s look at its growth prospects.
goeasy’s growth prospects
Although goeasy has grown its revenue at an annualized rate of over 17.5% for the previous 10 years, it has just acquired 2% of the $218 billion Canadian subprime market. So, its scope for expansion looks healthy. The falling interest rates could boost economic activities, thus driving credit demand and benefiting goeasy.
Given its expanded product range, solid distribution channel, and the strengthening of digital infrastructure to improve customer experience, goeasy is well-positioned to boost its loan originations and expand its loan portfolio. Moreover, the company has adopted enhanced underwriting and income verification processes and tightened its credit tolerance, which could lower its business risks.
Amid its solid second-quarter performance and healthy growth prospects, goeasy has raised its guidance for the next three years. The company’s management projects its loan portfolio in 2026 to be between $6.0-$6.4 billion, with the midpoint representing around a 50% increase from its current levels. Amid these expansions, its top line could grow at an annualized rate of around 27% for the next three years. Also, its operating margin could increase to 42% by 2026. So, its growth prospects look healthy.
Investors’ takeaway
Despite its solid second-quarter performance, goeasy’s stock price has increased by just 0.65% since reporting its second-quarter earnings. The company currently trades around 9% lower compared to its 52-week high. Its valuation looks reasonable, with the company trading 10 times analysts’ projected earnings for the next four quarters.
Moreover, goeasy has rewarded its shareholders by raising its dividends at an annualized rate of around 30% since 2013. It currently pays a quarterly dividend of $1.17/share, with its forward yield at 2.49%. Given its healthy growth prospects, attractive valuation, and consistent dividend growth, I believe goeasy would be an ideal buy right now.
