Earlier this month, goeasy (TSX:GSY) reported its third-quarter earnings, with its revenue and adjusted EPS (earnings per share) growing by 19% and 13%, respectively. Despite the healthy performance, the company’s growth was lower than the previous quarter’s revenue and adjusted EPS growth of 25%. Amid the slowdown, the company has lost 5% of its stock value since reporting its quarterly earnings on November 7 and is trading around 17% lower compared to its 52-week high. So, let’s examine its third-quarter performance and growth prospects to assess buying opportunity in the stock.
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goeasy’s third-quarter performance
goeasy generated $839 million of loan originations for the quarter that ended on September 30, representing a 16% increase from the previous year. A 22% increase in credit applications boosted its loan originations across product and acquisition channels, thus expanding its loan portfolio to $4.39 billion, a 28% year-over-year growth. Amid the expansion of its loan portfolio, the company’s revenue grew 19.1% to $383.2 billion.
Moreover, supported by its enhanced credit models and underwriting practices and an increase in the proportion of secured loans, the company experienced stable credit and payment performance. Meanwhile, its annualized net charge-off rate, which measures the loan losses, increased to 9.2% from 8.8% in the previous year’s quarter. However, it was within the company’s 8.75-9.75% guidance. Its allowance for future credit losses increased by seven basis points to 7.38%.
Meanwhile, goeasy’s adjusted operating income increased by 25% to $163 million, while its operating margin expanded from 40.4% to 42.6%. Also, its efficiency ratio expanded by 550 basis points to 28.6%, representing increased operating leverage. Amid top-line growth and expanded operating margin, the company posted an adjusted EPS of $4.32, representing a 13% increase from the previous year. Now, let’s look at its growth prospects.
goeasy’s growth prospects
goeasy’s solid third-quarter performance, despite the challenging macro environment, demonstrates the resilience of its business. It has also increased the proportion of secured loans to 45% and has adopted enhanced credit models and underwriting practices, which could lower its credit risks and drive its earnings. The company has strengthened its balance sheet by raising its funding capacity to above $1.8 billion.
Meanwhile, the central bank has slashed interest rates four times since June. Falling interest rates could boost economic activities, driving credit demand. Given its expanded product offerings and delivery channels, goeasy could benefit from the rising credit demand. Also, its enhanced credit models and underwriting practices could lower business risks and improve profitability.
Amid its growth prospects, goeasy’s management projects its 2026 loan portfolio to be between $6.0 and $6.4 billion, with the midpoint of the guidance representing a 41.2% increase from its current loan portfolio. Meanwhile, the midpoint of its revenue guidance represents an annualized revenue growth of 14% through 2026. Its operating margin could also improve from 38.1% in 2023 to 42% in 2026. Considering all these factors, I believe goeasy’s growth prospects look healthy.
Investors’ takeaway
Despite its healthy growth prospects, goeasy trades at a cheaper valuation, with its NTM (next-12-month) price-to-sales and NTM price-to-earnings multiples at 1.7 and 8.9, respectively. Also, the company has been raising its dividend for the last 10 consecutive years at an annualized rate of over 30%. With an annualized dividend payout of $4.68, its forward yield stands at 2.73%. Considering its healthy growth prospects, cheaper valuation, and consistent dividend growth, I am bullish on goeasy.
