Despite a volatile week, the S&P/TSX Composite Index remains up more than 22.5% year to date. Strong corporate earnings, declining interest rates, and a rally in natural resource stocks have helped propel the index higher. However, goeasy (TSX: GSY) has significantly underperformed the broader market, losing over 23% of its value this year and falling more than 42% from its recent high. A weaker-than-expected third-quarter performance, coupled with a short-seller report from Jehoshaphat Research, has rattled investor confidence and triggered a sharp sell-off.
Against this backdrop, let’s take a closer look at goeasy’s recently reported third-quarter results, growth outlook, and valuation to assess whether the recent pullback offers a compelling buying opportunity.
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goeasy’s third-quarter performance
During the quarter, goeasy generated $946 million in loan originations, which were 13% higher than the previous year’s quarter. Strong credit demand across its product and acquisition channels led to a 22% increase in credit applications, driving its loan originations. Amid increased loan originations, its consumer loan portfolio grew 24% year over year to $5.4 billion, while its topline grew 15% to $440 million.
Moreover, its annualized net charge-off rate improved by 30 basis points, declining from 9.2% in the same quarter last year to 8.9%, supported by a higher proportion of secured loans in its product mix and continued enhancements in its credit, underwriting, and collection practices. However, the company increased its allowance for future credit losses by 21 basis points to 8.1%, reflecting higher utilization of its borrower assistance programs and rising early-stage delinquencies amid persistently challenging macroeconomic conditions.
The company reported operating income of $166 million. Excluding special or one-time items, adjusted operating income came in at $170 million, a 4% increase from the same quarter last year. However, its adjusted operating margin declined by 400 basis points to 38.6%. Adjusted EPS was $4.12, down 5% year over year and well below analysts’ expectations of $4.64. With that in mind, let’s now examine the company’s growth prospects.
goeasy’s growth prospects
Last month, the Bank of Canada lowered its benchmark interest rate by 25 basis points to 2.25%. A low-interest-rate environment typically supports stronger credit demand, which could benefit financial services providers such as goeasy. With its expanded product suite and growing network of delivery channels, the company is well-positioned to capture this increase in demand. Additionally, adopting next-generation credit models, stricter underwriting standards, and more disciplined collection practices could help reduce delinquencies and enhance overall profitability.
Additionally, goeasy has reaffirmed its three-year guidance despite its soft third-quarter results. Management expects the loan portfolio to grow to $7.35–$7.75 billion by 2027, with the midpoint implying a 38.8% increase from current levels. Supported by this expansion, the company is targeting annualized revenue growth of 11.3% and an operating margin of 43% by 2027.
Investors’ takeaway
Following the steep correction, goeasy’s valuation appears compelling, with its NTM (next 12 months) price-to-sales and price-to-earnings multiples at 1.1 and 6.3, respectively. The company has also increased its dividend for 11 consecutive years at an impressive annualized rate of 29.5% and currently offers a solid yield of 4.7%. Considering its attractive valuation, consistent dividend growth, and robust long-term outlook, I remain bullish on goeasy despite the potential for near-term volatility.
