The financial sector is easily the heaviest in the TSX. The most prominent players are the big six banks, but there are also several insurance giants and asset management companies. All these different segments within the financial sector have their dynamics, strengths, and investment potential.
Bank stocks are sought after for their stellar dividend histories and healthy yields. Some of them also offer decent growth potential. Most insurance stocks are preferred for their dividends, most of the time.
Then, there are potent picks like goeasy (TSX: GSY) in niche financial industries (alternative financial services).
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Growth history
goeasy has a fantastic growth history. The stock returned about 668% to its investors through capital appreciation in the last 10 years. This number would have been significantly higher if not for the slump the stock still struggles to get out of.
The stock is trading at a 21% discount from its five-year peak, and the capital appreciation for this period is 144%. The numbers become even more impressive if we add dividends to the mix.
That’s partly because of the decent-sized payouts and partly because of the exceptional growth its payouts experienced in the last decade (about 260% growth in just the previous five years). The current yield of 2.7% is also decent enough to be a worthwhile factor in helping you make a purchase decision.
Future growth potential
Despite the slump, the growth numbers so far have been quite impressive. But the question is, how long will it continue? There are multiple factors endorsing goeasy’s growth potential, starting with its valuation. With the price-to-earnings ratio of 10.4, it may not be classified as an undervalued stock, but it’s quite close.
Another factor is the company’s finances. The latest quarterly results are promising. The operating income rose by 26% and adjusted operating margin by over 42%. The revenue rose by 19%. The percentage for organic loan portfolio growth is also in double digits. Strong finances indicate healthy organic growth that may be followed by a bullish performance.
Multiple analysts believe that the current price of $170 per share is significantly lower than the target price of over $220 per share. This $50-per-share growth can lead to decent returns for its investors.
However, there are arguments from the other end of the spectrum. Some analysts and experts believe that the economic conditions could be more conducive to the continued organic growth of the company (in the near future) and, by extension, the stock.
Foolish takeaway
At its current discounted and attractively valued state, goeasy seems worth buying for its growth potential. Or, more accurately, there are more reasons to buy the stock than not to buy it. You can maximize the growth potential by waiting till the stock actually turns bullish. That will also benefit you in terms of dividend yield.
