Retiring a millionaire is a dream of many people. This goal is not difficult to reach if you are disciplined and make consistent investments. An investment of $60,000, grown at an annualized rate of 12% over 25 years, will create wealth of over $1 million. In other words, an investment of $550 every month can make $1 million in 25 years if you can earn returns of 12% on your investments.
Meanwhile, investing in equity markets would be one of the options to earn over 12% returns. However, one has to be careful while choosing stocks. goeasy (TSX:GSY), which provides leasing and lending services to subprime customers, has delivered over 2,900% in returns at an annualized rate of 18.5% for the previous 20 years. Meanwhile, let’s look at the stock in detail to assess whether it can potentially repeat its performance in the upcoming years. First, let’s look at its performance in the recently reported third quarter.
goeasy’s solid third-quarter performance
goeasy reported its third-quarter performance in November, which ended on September 30. During the quarter, it generated $722 million in loan originations, a 13% increase from its previous year’s quarter. The record applications for credit led to higher loan originations across its products and acquisition channels. Amid these loan originations, its loan portfolio grew by $230 million to $3.4 billion.
Besides, it also witnessed stable credit and payment performance, with its net charge-off rate declining from 9.3% to 8.8%. The improved credit and product mix of its loan portfolio and enhancements to its credit underwriting helped lower its net charge-off rate.
Amid these solid operating metrics, the company’s revenue and operating income grew by 22.7% and 39%, respectively. Meanwhile, its adjusted operating margin expanded from 36.2% to 40.4%. Its effective ratio (operating expenses/total income) improved by 400 basis points from 32.6% in the previous year’s quarter to 28.6%. Besides, its adjusted EPS (earnings per share) increased by 29% to $3.81. Now, let’s look at its growth prospects.
goeasy’s growth prospects
goeasy has been growing its revenue and adjusted EPS in double digits for the previous 20 years. Despite the solid growth, it has acquired a small market share in the under $45,000 sub-prime credit market. So, it has a scope for expansion. Meanwhile, the subprime lender is focused on introducing new products, adding new delivery channels, and strengthening its auto financing segment by expanding its dealer network to drive sales.
Further, the company has enhanced underwriting and income verification processes, adopted next-gen credit models, and tightened its credit tolerance to lower default rates. So, the company’s growth prospects look healthy. Meanwhile, management expects its loan portfolio to grow around 49% from its current level to reach $5.1 billion by the end of 2025. Consequently, its operating margin could remain above 36% while delivering a return on equity of over 21% annually.
Driven by its solid financials, goeasy has increased its quarterly dividend at an annualized rate of over 30% since 2014. Its forward yield currently stands at 2.42%. Although its dividend yield is lower, investors could benefit from its impressive dividend growth. GSY stock trades at an attractive valuation, with its NTM (next 12 months) price-to-sales and NTM price-to-earnings at 1.9 and 9.7, respectively.
Investors’ takeaway
Given its growth prospects, attractive valuation, and impressive record of dividend growth, goeasy could deliver superior returns in the long run. However, investors should not look to invest considerable amounts in one or fewer stocks. They should have a well-diversified and balanced portfolio to reduce risks.
