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Canada’s Fast-Growing Stock of Consumer Lenders easy (TSX: GSY) has been under pressure since September of last year. Since then, it has lost 28% of its market value, grossly underperforming the broader markets. However, the stock looks attractive after the correction as its earnings growth outlook remains intact.
GSY stock for long-term investors
goeasy operates through two operating segments: easyfinancial and easyhome. The first is a consumer lender and a major growth driver for the company. It generates almost 80% of its income, while easyhome takes care of the rest. easyhome is a hire-purchase furniture lending company that has seen relatively moderate growth in recent times.
Thus, easyfinancial is aimed primarily at non-preferred borrowers. It issues secured and unsecured loans, the annual interest rate of which is up to 40%!
Although the rate is much higher, it is significantly lower than payday lenders. Payday lenders remain the only option for unpreferred borrowers after being rejected by traditional financial institutions.
goeasy is still a small player in the large addressable market with around 3% market share. The loans segment operates 286 stores, while easyhome operates 158 stores nationwide.
It has aggressively expanded its distribution channels, both online and offline, over the past few years. Its point-of-sale and auto loan segments are expected to see increased traction given the full economic reopenings.
goeasy updated its subscription software last year to better use consumer banking data to serve underserved populations like students and new Canadians.
Superior financial growth
Despite being in a risky industry, goeasy has consistently performed well. Its net income has grown by a massive CAGR of 38% over the past decade. Its return on equity averaged around 20% over the same period.
That’s why the stock has returned 2,600% over the past decade. In particular, the TSX Composite Index returned barely 70% during this period.
GSY has been paying dividends regularly for years and currently yields 1.5%.
goeasy grants three-year funding advice and has a history of passing. Management expects CAGR revenue growth of 15% for the next three years with an operating margin above 35%. Interestingly, the company forecasts an adjusted return on equity above 22% through 2023.
goeasy has entered a new cycle of growth after experiencing the worst of the pandemic in 2020. I believe it is very well positioned to achieve consistent profitability due to the expansion of its channels and a recent foray into many new products.
At the end of the line
GSY stock is currently trading at a price/earnings multiple of 10. Interestingly, its historical five-year average valuation is around 14. So the stock should see a decent upside move from here. .
The company could experience superior growth driven by strong loan demand, solid execution and internal underwriting. Moreover, its undervalued stock looks well positioned to climb higher after a significant correction recently.