goeasy (TSX:GSY) is an alternative financial services company offering subprime customers lending and leasing services. Since beginning its lending services in 2006, it took 13 years to expand its loan portfolio to $1 billion. However, since then, its loan portfolio has more than quadrupled, standing at $4.6 billion as of December 31, 2024. These expansions have boosted its financials, thus supporting its stock price growth. Over the last 20 years, the company has returned 1,128.2%, representing an annualized return of 13.4%.
However, the company has been under pressure over the last few months and trades around 28% lower than its July highs. Amid the pullback, its valuation looks attractive. So, let’s assess its recently reported fourth-quarter performance and growth prospects to determine buying opportunities in the stock.
goeasy’s fourth-quarter performance
goeasy reported an impressive fourth-quarter performance last month, with loan origination of $814 million — a 15% increase from the previous year. The company witnessed solid performance across its product offerings and acquisition channels amid rising credit demand with record applications during the quarter. Rising loan originations drove its loan portfolio to $4.6 billion, representing a 26% increase from the previous year’s quarter. Its top line grew by 19.8% to $405 million during the quarter, with the company witnessing stable credit and payment performance.
Meanwhile, its annualized net off charge rose to 9.1% from 8.8% in the previous year’s quarter. But, it still stood below its 8.75-9.75% guidance. The company has also increased the allowance for future credit losses from 7.38% to 7.61% amid a challenging macroeconomic outlook. Its operating income stood at $165 million. However, removing one-time or extraordinary expenses, its adjusted operating income stood at $168 million, a 20% increase from the previous year’s quarter, while its adjusted operating income stood at 41.6%. Further, its adjusted EPS (earnings per share) rose 11% to $4.45. Now, let’s look at its growth prospects.
goeasy’s growth prospects
Last week, the Bank of Canada slashed its benchmark interest rates by 25 basis points. It was the seventh consecutive rate cut by the central bank. Falling interest rates could boost economic activities and drive credit demand, thus benefiting goeasy. Also, delinquencies could fall in a lower interest rate environment.
Moreover, goeasy’s expanded product offerings, multiple distribution channels, enhanced customer relationships, and risk-based pricing would allow it to benefit from the rising credit demand. The company is also investing strategically to become Canada’s top non-prime, non-bank auto lender. It also adopted next-generation credit models and tightened underwriting requirements to lower delinquencies. Considering all these factors, I expect the uptrend in goeasy’s financials to continue.
Meanwhile, goeasy’s management projects its loan portfolio to reach $7.35-$7.75 billion by 2027, with the midpoint representing a 64% increase from 2024. Also, its revenue could grow at an annualized rate of 11.3% during this period while improving its operating margin to 43% by 2027. So, its growth prospects look healthy.
Investors’ takeaway
Despite its healthy financials and growth prospects, goeasy has been under pressure over the last few months due to a challenging macro environment. The pullback has dragged its valuation down to attractive territory, with its next-12-month price-to-earnings multiple at 7.5. Moreover, last month, the company raised its annual dividends by 25% to $5.84 per share, marking the 11th consecutive year of a dividend hike. Its forward yield is 3.92% as of the March 14th closing price. Considering all these factors, I believe goeasy would be an excellent long-term buy.
