Canadian equity markets are facing pressure this week, with the S&P/TSX Composite Index down 1.3%. Investors appear to be locking in profits following strong gains, particularly in the technology sector. Despite the recent pullback, the index remains up more than 20% year to date. However, the following two stocks have lagged behind the broader market for various reasons. Let’s review their latest quarterly results, growth outlooks, and valuations to assess whether the recent dip presents a buying opportunity.
goeasy
goeasy (TSX:GSY), which offers lending and leasing services to subprime customers, has been under pressure this year, with its stock value down over 17% year to date. The weaker-than-expected third-quarter performances and a short-seller report from Jehoshaphat Research have weighed on the company’s stock price. In the third quarter, the company originated $946 million in new loans, supported by robust credit demand and a 22% increase in credit applications. It delivered strong performance across all product lines and acquisition channels.
These loan originations expanded its loan book to $5.44 billion, while its top line grew 15% to $440 million. Its net charge-off rate, which represents the proportion of loans deemed uncollectible, improved by 30 basis points year over year to 8.9%. Meanwhile, the company raised its allowance for future credit losses by 21 basis points from the previous quarter to 8.13%, reflecting increased utilization of borrower assistance programs and a rise in early-stage delinquencies amid an uncertain economic environment. The raising of its provisions has hurt its adjusted EPS (earnings per share), which stood at $4.12, down 4.6% from the previous year’s quarter. Additionally, the company’s adjusted EPS was lower than the analysts’ projected $4.64.
Despite a slight dip in earnings, goeasy’s management reaffirmed its three-year outlook. The company projects its loan portfolio to expand by approximately 38% (at the midpoint of guidance) from current levels, with revenue expected to grow at an annualized rate of 11.3% through 2027. Additionally, management anticipates operating margins to rise to 43% while delivering an annual return on equity of around 23% over the same period. Furthermore, the company has a strong track record of shareholder returns, having raised its dividend at an impressive annualized rate of 29.5% over the past 11 years. It presently provides a forward yield of 4.35%.
Additionally, the recent pullback has made the stock’s valuation more appealing, with its next 12-month (NTM) price-to-sales and price-to-earnings multiples at 1.2 and 6.8, respectively. Considering these attractive metrics and the company’s solid growth outlook, I believe goeasy presents an excellent buying opportunity for investors with an investment horizon of three years or longer.
Waste Connections
Waste Connections (TSX:WCN) is another stock that has been under pressure this year, losing approximately 4.7% of its stock value. Falling values of recycled commodities and renewable energy credits, coupled with ongoing economic uncertainty, have dampened investor sentiment and put pressure on the company’s stock price. Meanwhile, the company is expanding its footprint both organically and through strategic acquisitions.
Year-to-date, WCN has completed several acquisitions, which can add approximately $300 million to its annualized revenue. Backed by strong financial performance and robust cash flows, the company plans to maintain its acquisition momentum in the coming quarters. Additionally, it continues to leverage technology to enhance customer experience, increase operational efficiency, and strengthen profitability. Moreover, declining voluntary turnover, supported by improved employee engagement initiatives and better safety metrics, can further support its margin expansions. Given these healthy growth prospects, I believe WCN would be an excellent buy at these levels.
