Growth stocks often steal the spotlight when it comes to building wealth. Thanks to their ability to deliver large-scale capital gains, they offer the potential for impressive future returns. Thus, investing in fundamentally strong growth stocks can be a smart strategy for investors aiming to grow their portfolios over the long term.
However, higher growth potential often comes with greater risk. This means investors need to be selective when choosing the right growth stocks. The key is to focus on Canadian companies with fundamentally strong businesses, solid revenue, and earnings growth potential, as well as a proven ability to generate high returns on equity (ROE). So, if you have $500 to invest, here is the ultimate growth stock to buy now.
The ultimate growth stock
goeasy (TSX:GSY) checks all the right boxes when finding the ultimate growth stock. With solid revenue and earnings growth, a history of increasing dividends, and a robust return on equity (ROE), this company is poised to deliver stellar returns in the long run.
goeasy provides lending services to subprime borrowers through unsecured and secured loans. Moreover, it also offers lease-to-own services and buy-now-pay-later options. The company’s wide range of products and omnichannel offerings drive its loan originations and overall growth.
Looking at the numbers, goeasy’s financial performance over the last 10 years has been solid, with near-term growth even more impressive. The financial services company’s top line grew at a CAGR of 19% in the past decade, while its adjusted earnings increased at a CAGR of about 29%.
Investors who bought goeasy stock a decade ago have been handsomely rewarded. The stock grew at a CAGR of about 28%, delivering a return of about 1,080%. Further, goeasy steadily increased its dividend payments during this time and delivered an average ROE of 26.4% over the past five years.
Why buy and hold goeasy stock?
goeasy’s stock is expected to maintain its upward momentum, though the path forward is unlikely to be perfectly linear. Recently, the stock experienced a pullback, reflecting slightly lower portfolio yields during the third quarter of 2024. An increased focus on lower-APR secured loan products drove this softness. However, this adjustment is a strategic move that positions the company for sustained, high-quality growth in the quarters ahead.
The higher quality of its loan originations and the solid credit performance of the overall portfolio could lead to double-digit growth in its top and bottom lines. Further, the company’s focus on credit adjustments and an improved product mix will enhance its margins and profitability.
The company’s credit losses will likely remain stable, reflecting proactive credit tightening and the higher mix of secured loans.
Notably, goeasy will likely benefit from operating leverage and its productivity improvements. In the third quarter of 2024, its efficiency ratio reached a record low of 23.1%, a substantial improvement from 28.6% in the same quarter the previous year.
Looking ahead, goeasy’s broad product portfolio, geographic expansion, and diversified and growing funding capacity will likely drive its loan portfolio and support double-digit revenue increases. Additionally, goeasy’s solid credit underwriting capabilities and stable portfolio performance are expected to translate into continued earnings growth. These strengths and operational efficiencies will likely support steady dividend payouts and share price, making goeasy a top growth stock for long-term investors.
