Investing in quality growth stocks trading at cheap valuations is a proven strategy to generate outsized returns. In this article, I have identified one magnificent TSX stock that is down 13% from all-time highs and poised to beat the broader markets over the next five years.
Valued at a market cap of $1.42 billion, Propel Holdings (TSX:PRL) is a Canadian fintech company specializing in online lending solutions for underserved consumers. It offers installment loans and lines of credit through brands like MoneyKey and CreditFresh, targeting borrowers with limited credit histories through technology-driven platforms that enable efficient customer acquisition and loan servicing.
Propel generates revenue through interest income and fees, emphasizing responsible lending practices with transparent terms and financial education resources. Its recent strategic initiatives include diversifying funding sources, investing in marketing and customer acquisition, and enhancing technology and analytics capabilities.
Propel’s competitive advantages include counter-positioning by serving markets traditional banks avoid, scale economies that reduce marginal costs as the platform grows, switching costs created through integrated customer experiences, and network effects from data analytics that improve risk assessment models.
Is this TSX stock a good buy right now?
Propel Holdings posted exceptional results in the first quarter (Q1), as it reported record financial metrics, capitalizing on favourable market conditions and tightening traditional bank underwriting. Propel reported revenue of US$138.9 million, up 44% year over year, while net income surged 79% to US$23.5 million, driving diluted earnings per share to US$0.56 compared to US$0.35 in the prior year.
CEO Clive Kinross emphasized that macroeconomic uncertainty represents an opportunity for Propel, as traditional banks tighten lending standards amid tariff concerns.
The Federal Reserve Bank of New York reported credit rejection rates increased to 21.5% from 18.7% year over year, while consumer demand for credit jumped from 23% to 27%. This dynamic pushes higher-quality borrowers into Propel’s segment, improving credit performance while expanding the addressable market.
Total originations funded reached a Q1 record of US$154 million, up 32% year over year, while the company delivered its strongest credit performance since Q2 of 2021.
Provision for loan losses as a percentage of revenue improved to 42% from 44%, reflecting the effectiveness of Propel’s AI-powered underwriting platform and the influx of better-quality borrowers from traditional bank tightening.
The company’s U.K. acquisition, QuidMarket, exceeded expectations with record quarterly originations and strong credit performance ahead of projections. Management noted QuidMarket is running 10-15% ahead of growth plans early in Q2, providing significant expansion potential in the UK’s underserved market of 20 million consumers.
Propel enhanced its financial flexibility through a US$70 million credit facility upsize to US$400 million while reducing borrowing costs by approximately 150 basis points. The Board approved the eighth dividend increase since 2023, raising the annualized dividend 9% to US$0.72 per share, reflecting confidence in sustained profitability and cash generation capabilities.
Is the TSX stock undervalued?
Analysts tracking Propel expect revenue to grow from US$450 million in 2024 to US$919 million in 2027. In this period, adjusted earnings are forecast to expand from US$1.64 per share to US$3.74 per share. A widening earnings base should enable the TSX stock to raise dividends from US$0.40 per share in 2024 to US$1.14 in 2027.
Today, PRL stock trades at a forward price-to-earnings multiple of 9.8 times, which is quite cheap, given its earnings estimates. If it is priced at 15 times forward earnings, PRL stock could trade around US$56 in early 2027, indicating an upside potential of over 100% from current levels.
