When it comes to investing in Canadian stocks, BCE (TSX: BCE) often grabs the spotlight. But let’s shift our gaze to a mid-cap gem that’s been making waves: goeasy (TSX: GSY). This financial services company has been quietly outperforming, and it might just deserve a spot on your investment radar. But is it as strong as blue-chip stock BCE?
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The numbers
In its most recent earnings report, goeasy announced an adjusted operating income of $163 million, marking a 25% increase from the previous year. The company also achieved an adjusted return on equity of 25.7%, reflecting its efficient use of capital. These results highlight goeasy’s ability to grow its business while maintaining strong profitability. This is an important factor for long-term investors looking for steady returns.
Over the past five years, goeasy demonstrated impressive growth, with a five-year diluted earnings per share (EPS) compound annual growth rate (CAGR) of 28.7%. Plus, it has a five-year revenue CAGR of 20.1%. These figures indicate consistent financial expansion, something that can’t be said for many companies in the current high-interest-rate environment. Unlike BCE stock, which faces pressures from rising costs and a highly competitive telecom industry, goeasy operates in a niche financial segment that continues to show resilience.
Looking ahead, goeasy anticipates loan portfolio growth of $205 million to $230 million in the upcoming quarter. The company also expects to maintain an annualized net charge-off rate between 8.75% and 9.75%, indicating prudent risk management. Given the economic uncertainty and potential headwinds in consumer lending, goeasy’s ability to keep charge-offs within this range speaks to its disciplined credit assessment practices.
What about value?
Analysts are optimistic about goeasy’s future, with a consensus 12-month price target of $225.64, suggesting significant upside from its current trading price. The stock has received multiple buy ratings, reflecting strong confidence in its earnings potential. Meanwhile, BCE stock continues to struggle with declining wireline revenues, high debt levels, and regulatory pressures. This could limit its stock’s ability to recover meaningfully in the near term.
In terms of valuation, goeasy’s trailing price-to-earnings (P/E) ratio stands at 10.80, which is relatively modest compared to industry peers. This suggests that the stock may be undervalued, offering an attractive entry point for investors. BCE stock, on the other hand, has a much higher forward P/E ratio, meaning investors are currently paying a premium for its earnings despite its ongoing challenges. For those seeking growth at a reasonable price, goeasy stands out as a strong contender.
The company has also been expanding its dealer network for automotive financing, reaching over 3,700 dealers and achieving $150 million in quarterly originations for the first time. This expansion diversifies its revenue streams and enhances growth potential, making it more than just a consumer lending company. With the financial services sector evolving rapidly, goeasy is positioning itself to benefit from long-term trends, including alternative lending and non-bank financial services.
Bottom line
While BCE stock remains a safe dividend stock, it lacks the growth potential that goeasy offers. BCE’s dividend yield, while attractive, has ballooned due to a declining stock price. This may indicate trouble ahead. Dividend investors often look at sustainability, and BCE stock’s payout ratio, currently at a staggering 4,400%, raises red flags. However, goeasy continues to grow its dividend while keeping its payout ratio at a reasonable level, making it a more balanced income and growth play.
For investors seeking exposure to a growing, well-managed mid-cap stock with strong fundamentals, goeasy is worth considering. Its earnings growth, expanding market presence, and solid valuation make it a compelling alternative to BCE stock, especially in an environment where traditional blue-chip stocks face increasing pressure.
As always, it’s essential to conduct your own research and consider your investment goals and risk tolerance before making any decisions. But if you’re looking for a stock that combines growth with financial strength, goeasy might just be the opportunity you’ve been waiting for.
