The Canadian equity markets have extended their uptrend, with the S&P/TSX Composite Index reaching a new high yesterday. Year to date, the index has increased by 22%. Despite investors’ optimism, the following two Canadian stocks have underperformed the broader equity markets and trade at attractive valuations. Given their discounted stock prices and high growth prospects, I expect these two companies to deliver multi-fold returns over the long run.
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goeasy
goeasy (TSX: GSY) is a Canadian alternative financial services company that offers lending and leasing services to subprime customers. Last month, Jehoshaphat Research released a report accusing the Mississauga-based company of improperly deferring the reporting of its credit losses and failing to disclose significant delinquencies. The research firm also believes that goeasy has systematically suppressed the reporting of its delinquencies for years. Meanwhile, goeasy has denied these allegations, terming the report as false and malicious.
However, investors’ skepticism has weighed on goeasy’s stock price, leading to a decline of roughly 17% since the report’s release on September 19. The correction has dragged its valuation down, with its NTM (next-12-month) price-to-sales and NTM price-to-earnings multiples at 1.5 and 8.3, respectively.
Moreover, goeasy has reported a healthy performance in the first two quarters of this year, generating $1.58 billion of loan originations and thereby increasing its loan portfolio to $5.1 billion. Its loan portfolio represents a 23% increase from the previous year’s quarter. Additionally, its annualized net charge-off rate decreased by 40 basis points to 8.8%. Amid these solid operating performances, its top line and diluted EPS (earnings per share) grew by 10.2% and 4.3%, respectively.
Additionally, the Canadian subprime market has grown at an annualized rate of 4.2% since 2021, reaching $231 billion in 2024. Meanwhile, goeasy has acquired just 2% of the market. Therefore, it has substantial scope for expansion. With its expanded product portfolio, strategic initiatives, and increasing market penetration, the company is well-positioned to strengthen its market position and drive financial growth. Additionally, the company has consistently rewarded shareholders, raising its dividend at an annualized rate of approximately 29.5% over the past 11 years, and currently offers a solid yield of 3.46%. Considering all these factors, I am bullish on goeasy despite the near-term volatility.
Savaria
Second on my list is Savaria (TSX: SIS), which designs, manufactures, distributes, and installs accessibility solutions worldwide. It has reported a healthy performance in the first six months of this year, with its revenue and adjusted EPS growing by 3.8% and 20.9%, respectively. Its top-line growth and expansion of gross margin amid improving efficiencies from procurement, pricing, and operations through its “Savaria One” initiative led to its EPS growth.
Moreover, the growing aging population has increased the demand for accessibility solutions. Given its comprehensive product line and global dealer network, Savaria is well-positioned to benefit from demand growth. Additionally, the company is prioritizing product innovation, expanding capacity, enhancing efficiency, and driving cost savings through streamlined procurement.
The company has also launched the second phase of its “Savaria One” initiative, which will shape its strategic direction over the next three years. With $275 million of available funds, the company could pursue strategic acquisitions and invest aggressively in marketing initiatives. Additionally, the company currently distributes a monthly dividend of $0.0467 per share, which equates to a forward yield of 2.74%.
Despite all these favourable factors, Savaria currently trades at NTM price-to-sales and NTM price-to-earnings multiples of 1.6 and 17.2, respectively. Considering its reasonable valuation and healthy growth prospects, I believe Savaria would be an excellent buy at these levels.
