After underperforming the broader markets in 2022, most Canadian growth stocks witnessed a solid recovery year to date. The easing of inflation and expectations of stabilization in interest rates increased investors’ risk appetite and led to a buying in growth stocks. Despite the recent appreciation in price, shares of a few fundamentally strong Canadian growth stocks are trading at a discounted valuation, offering significant value near the current levels.
So, if you are looking to invest in a high-quality growth stock, here is my top pick to buy right now.
A top growth stock
While the TSX has several high-quality growth stocks, investors could consider investing in goeasy (TSX:GSY) stock. The company provides lending services to the subprime borrowers. Its stock has recovered from the lows and has gained nearly 15% year to date. Moreover, it has grown at a CAGR (compound annual growth rate) of over 27% in the past decade, delivering an overall price return of more than 1,034%.
goeasy’s stellar returns are backed by its ability to generate strong growth, regardless of the market conditions. Investors should note that goeasy’s top and bottom lines have grown at a CAGR of 17.7% and 29.5% in the past decade. The company’s growth has been even better in recent years. For instance, its top revenue has increased at a CAGR of 19.44% in the last five years (as of June 30, 2023). At the same time, its EPS (earnings per share) increased at a CAGR of 31.91%.
Despite the macro headwinds, goeasy continues to produce record loan originations, led by solid demand, as reflected through the increased volume of credit applications. Further, goeasy continues to experience strong performance across its entire range of products and customer acquisition channels.
While higher loan originations support its top-line growth, stable credit and payment performance and efficiency improvement drive its bottom line. During the second quarter of 2023, goeasy’s efficiency ratio improved by 300 basis points year over year, reflecting an increase in operating leverage.
Higher loan originations, solid credit quality, and operating leverage will likely support its top- and bottom-line growth. Meanwhile, investors will also benefit from its reliable dividend payouts.
goeasy growing dividends insanely fast
Thanks to its growing earnings base, goeasy has rapidly increased its dividends. It has paid an uninterrupted dividend for 19 consecutive years and increased the same for nine years. Notably, goeasy’s dividend has grown from $0.90 a share in 2018 to $3.84 in 2023, reflecting a jump of 327%.
The company’s ability to generate profitable growth positions it well to enhance its shareholders’ returns with higher dividend payments in the coming years. Meanwhile, investors can earn a yield of 3.2% by investing in shares near the current price levels.
Bottom line
goeasy is a top stock for investors seeking growth and income. Besides its solid fundamentals, the stock trades at a discounted valuation, making it a compelling investment near the current levels. Its shares are trading at the next 12-month price-to-earnings multiple of eight, which appears attractive given its solid double-digit earnings growth and a decent dividend yield of 3.2%.
