Goeasy (TSX:GSY) is a Canadian non-bank lender that specializes in lending money to non-prime (i.e., riskier than average) borrowers. Although the company’s target clientele might sound like a risky bunch to be doing business with, their “non-prime” status means that they pay higher interest rates than most Canadian borrowers.
Goeasy’s business is divided into three main segments:
- EasyHome. A “lease to own” business that helps consumers finance purchases of home electronics, appliances, and furniture.
- EasyFinancial. A company that issues personal loans worth up to $150,000.
- LendCare. A point-of-sale financing company.
Overall, the company’s services are not unlike those offered by a bank. However, goeasy’s businesses stand out thanks to their quick loan approval times and willingness to work with non-prime borrowers. It’s a unique niche in the financial world. The question is, is that enough to make GSY stock a buy? Let’s find out.
Source: Getty Images
Recent earnings
We can start our analysis of goeasy by looking at the company’s most recent earnings release. Goeasy’s most recent earnings release was a fairly major miss, lagging analyst expectations on revenue, adjusted earnings and reported earnings per share (EPS). However, the growth rates were positive and the profit margins were high. Some metrics worth mentioning include:
- A $4.8 billion loan portfolio, up 24% in value year over year.
- $418 million in revenue, up 11%.
- $4.11 in EPS, unchanged.
- $677 million worth of new loans originated.
- An 8.8% charge-off rate, down from 9.3%.
Overall, GSY’s most recent release showed the company growing and its delinquencies declining. It appeared to have been a decent showing in an absolute sense, despite lagging the expected results.
Long-term performance
On a long-term basis, goeasy has done even better than it did in its most recent quarter. Over the last five years, the company compounded its revenue, earnings, and common equity at the following rates:
- Revenue: 15%.
- Earnings: 28%.
- Equity: 27%.
These are compounded annual rates, meaning that the cumulative five-year totals were well in excess of 100%. So, goeasy has done some growing over the years. The company is also highly profitable, with a 32% net income margin and a 23% return on equity in the trailing 12-month (TTM) period.
Valuation
Armed with the information we covered earlier, we can proceed to valuing GSY stock.
GSY stock traded at fairly modest multiples on the date this article was written. Using TTM earnings, revenue, equity and cash flow figures, it traded at:
- 11 times earnings.
- 3.9 times sales.
- 2.6 times book value.
- 9.16 times analysts’ consensus estimate of next year’s operating cash flow.
Overall, GSY is cheaper than the TSX Index going by multiples. It is also cheaper than its larger competitors, the big Canadian banks.
Foolish takeaway
Taking everything into account, GSY stock looks like a decent buy today. The company is very profitable, it’s growing, and it has a unique position in Canada’s financial services industry. These advantages do not “guarantee” that GSY stock will perform well, but they do increase the probability that it will. Given its high growth, high profit margins and relative cheapness, I’d be comfortable holding GSY stock in my portfolio.
