Propel Holdings (TSX: PRL) is a Canada-based company that went public in late 2021. Over the last three years, the TSX stock has returned over 250% to shareholders, crushing broader market returns by a significant margin.
However, PRL stock also trades 8% below all-time highs and remains a top investment choice at current multiples. Here’s why I’m bullish on Propel Holdings stock right now.
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The bull case for PRL stock
Propel Holdings is a fintech company that facilitates access to credit products such as installment loans and lines of credit to customers in Canada and the United States. It has increased sales from $60.2 million in 2018 to $416.4 million in the last 12 months.
Despite elevated interest rates, Propel increased its sales by 41% year over year to $117.2 million, while adjusted net income growth was higher at 66%. It ended the third quarter (Q3) with a combined loan and advances balance of $432 million, up 44% year over year.
While most Canadian banks have a return on equity of less than 20%, Propel reported an ROE of 34% in Q3, up from 27% in the year-ago period. Its adjusted ROE rose from 37% to 45% over the last 12 months.
Propel completed the acquisition of QuickMarket for a purchase price of $71 million in Q3, allowing it to enter the U.K. market. The acquisition was funded by an equity offering of $115 million and should be immediately accretive to revenue and earnings.
A strong U.S. economy, coupled with low unemployment rates and steady GDP growth, should help Propel increase its revenue over the next 12 months.
Is the TSX stock undervalued?
Unlike several other growth stocks, Propel reports a consistent profit and even pays shareholders a growing dividend. Propel recently raised its annual dividend by 7% year over year to $0.60 per share, which translates to a forward yield of 1.6%. In fact, the company has raised its dividends six times since the start of 2023.
Investors should expect the dividend payout to keep growing as revenue is forecast to touch $450 million in 2024 and $629 million in 2025, given consensus estimates. Analysts project adjusted earnings to expand from $0.98 per share in 2023 to $2.57 per share in 2025. So, priced at 14.6 times forward earnings, PRL stock trades at a reasonable valuation.
During the recent earnings call, Propel emphasized leveraging artificial intelligence capabilities to support its credit disbursement process and maintain credit quality.
Moreover, its partnership with Coho should expand distribution channels and create a scalable growth avenue by gaining traction in multiple underserved markets.
Further, investors are bullish on Propel because of its lending-as-a-service business, which is experiencing ongoing geographic expansion, a widening purchaser base, and an increase in commitments from existing clients.
The Foolish takeaway
Propel appears to be executing well on multiple fronts while maintaining strong credit quality and operational efficiency. The company’s investment in AI and technology infrastructure seems to be paying off through improved metrics across the board.
Analysts tracking the stock remain bullish and expect it to gain over 20% from current levels, given consensus price target estimates.
