2-for1 Sale
It’s been over a month since goeasy (TSX:GSY) announced its better-than-expected second-quarter results on August 9. However, instead of rising, GSY stock has lost roughly 14% of its value since then to currently trade at $113.16 per share, trimming its year-to-date gains to 6.3% and taking the market cap to $1.9 billion.
Before we discuss whether goeasy stock looks attractive to buy on the dip in September 2023, let’s take a closer look at its financials from recent quarters and find out what could be driving its stock lately.
The ongoing growth trend in goeasy’s financials
If you don’t know about it already, goeasy is a Mississauga-headquartered company that primarily focuses on leasing and lending services through three of its key brands, including easyhome, easyfinancial, and LendCare.
In 2022, goeasy posted record revenues of $1.2 billion, reflecting a 23.3% YoY (year-over-year) increase but missing Street analysts’ expectations. The company’s revenue and earnings in the first half of 2022 grew positively by about 30% and 12% YoY, respectively. However, its revenue and earnings-growth rate in the second half of the year declined to 18% and 10% YoY, respectively. These negative factors could be one of the reasons why its share prices went down by more than 40% last year.
In the quarter ended in June 2023, goeasy reported a 20.4% YoY improvement in its total revenue to $302.9 million with the help of 6% positive growth in its loan originations and a 35% jump in its loan portfolio. Similarly, its adjusted quarterly earnings of $3.28 per share was 15.9% higher on a YoY basis, also exceeding analysts’ estimate of $3.20 per share. As there seems to be nothing majorly wrong with its latest quarterly results, its fundamentals can’t be blamed for affecting GSY stock’s price movement in 2023.
Then what’s affecting GSY stock lately?
There are several other external factors that might be restricting GSY stock from rising in 2023. For example, in the 2023 Federal budget, the government revealed plans to cut the maximum allowable annual interest rate to 35%. While goeasy’s weighted average interest rate percentage has already gone down well below 35% in recent years, it believes that the move “would have significant unintended negative consequences for both Canadian consumers and small and medium-sized businesses.”
Being a company with good operating leverage, goeasy expects to get more business after a reduction in the maximum allowable annual interest rate amid lower competition. However, investors seemingly remain skeptical that the move could hurt its business growth and profits, especially in tough economic environments. These worries could be the main reason why GSY’s share prices tanked by over 24% in March 2023, posting their worst monthly losses after March 2020.
In addition, goeasy stock’s declines after the release of its second-quarter results could largely be due to growing broader market uncertainties arising from slowing economic growth and other macroeconomic concerns.
Is it worth buying on the dip?
While it’s yet to be seen how a reduction in maximum allowable annual interest rate would impact lenders in the real world, goeasy, as it also claims, is expected to remain in a comparatively better position than most small- and medium-sized lenders. Considering this argument and the ongoing strength in goeasy’s financial growth trends, it looks cheap to buy on the dip and hold for the long term, especially for dividend investors.
At the current market price, GSY stock has an annualized dividend yield of 3.4% and distributes its dividend payouts every quarter.
