goeasy (TSX:GSY) is a prominent player in the Canadian financial landscape. Since 1990, it has provided non-prime credit solutions to Canadians who might otherwise struggle to access traditional forms of credit.
As the company continues to expand its services and reach, it raises an important question: Is goeasy’s growth sustainable? Let’s delve into the factors contributing to its expansion and assess whether its trajectory is likely to continue.
Diverse customer base and target market
goeasy’s customer base is both broad and varied, spanning industry sectors including manufacturing, retail, healthcare, technology, and public services. This wide-ranging clientele reflects the company’s strategic focus on Canadians with non-prime credit who need alternative credit options. Its target market is more than 9.3 million Canadians, an impressive figure that highlights the substantial market opportunity.
In its 2023 annual report, the company defines the “typical customer” as a 43-year-old individual, supporting an average of 1.9 dependents, with an annual income of $60,000. These clients tend to have stable job histories and long-term residence, suggesting that they may not be at high risk of defaulting on loans.
Additionally, non-prime credit consumers carry 53% less total consumer debt compared to their prime counterparts, largely due to lower home ownership rates. This demographic detail indicates a more manageable risk profile and potential for steadier growth for goeasy.
Expansion through product diversification and acquisitions
Over the years, goeasy has strategically diversified its product offerings, which has been pivotal in driving both revenue and profitability. A notable example is the acquisition of LendCare in April 2021. LendCare is a prominent provider of point-of-sale financing and operates through a network of over 6,200 merchants. This acquisition has enabled goeasy to enhance its financing options for a range of products, from powersports and healthcare to everyday retail purchases.
In addition to acquisitions, goeasy has broadened its product lineup to include various types of credit solutions such as leasing for household items, unsecured personal loans, home equity loans, automotive financing, and everyday purchase financing. This diversification not only caters to a wider array of customer needs but also helps stabilize revenue streams by reducing reliance on any single product type.
Omnichannel distribution and international expansion potential
A key component of goeasy’s growth strategy is its omnichannel business model. The company delivers its products and services through a comprehensive network that includes over 400 physical locations, an extensive digital platform (including a mobile app), and a broad merchant and dealer network of over 9,500 partners. This multi-channel approach ensures that goeasy can reach customers through their preferred method of interaction, enhancing convenience and accessibility.
Looking ahead, goeasy is eyeing international markets as potential growth avenues. The United States and the United Kingdom, with their large non-prime credit populations (over 100 million and 12 million, respectively), represent significant opportunities for expansion. While international entry involves inherent risks, the substantial market sizes in these regions imply a promising potential for growth if goeasy can effectively adapt its business model to new environments.
Strong financial performance
In terms of financial performance, goeasy has demonstrated remarkable growth. Over the last five years, the dividend stock has delivered total returns at a compound annual growth rate (CAGR) of approximately 30% and 25% over the last decade. This impressive performance is complemented by a robust dividend growth rate of 27% over 10 years, positioning goeasy as a leading Canadian Dividend Aristocrat.
Trading at $181 per share at writing, the growth stock offers a dividend yield of nearly 2.6%. Analysts believe the stock is trading at a discount of about 20%, which could present a compelling opportunity for investors. The combination of strong historical returns, growing dividends, and a favourable valuation contributes to the positive outlook for goeasy’s future growth.
The Foolish investor takeaway
goeasy’s growth appears to be underpinned by a solid foundation of diverse product offerings, strategic acquisitions, effective omnichannels, and promising international expansion prospects.
Coupled with its strong financial performance, these factors suggest that goeasy’s growth trajectory is sustainable over the medium term. However, as with any investment, continued vigilance and adaptability to market changes will be crucial in maintaining this positive momentum.
