Indisputably, goeasy (TSX:GSY) has been a fabulous long-term investment. In fact, over the last one, three, five, and 10 years, it outperformed the Canadian stock market and the financials sector.
For example, the graph below displays the growth of an initial investment of $10,000 over the last decade. goeasy stock delivered annualized returns of close to 29.5%, while the financials sector and the Canadian stock market delivered 8.5% and 7.6%, respectively, in the period.
GSY Total Return Level data by YCharts
goeasy’s business
goeasy is a leading Canadian non-prime consumer lender that aims to help its clients improve their credit scores. First, it operates easyfinancial, which offers a range of financial services, including personal loans and secured loans. Second, it owns Canada’s largest lease-to-own company, easyhome, which offers brand-name furniture, appliances, and electronics to consumers on a lease-to-own basis. Third, in 2021, goeasy acquired LendCare, which provides point-of-sale consumer lending.
Recent results
goeasy just reported its four-quarter (Q4) and full-year 2023 earnings results on Tuesday. The quarter marked 90 consecutive quarters (or 22.5 years) of positive net income for the business. This shows the relevancy of the non-prime consumer lending business through the economic cycle.
The quarter generated loan originations growth of 12% year over year (YOY) — the increase in lending was driven by a record volume of applications for credit, which were up 29%. The company experienced strong performance across its product and acquisition channels, including unsecured lending, point-of-sale lending, and automotive financing.
Consequently, goeasy saw loan portfolio growth of $215 million. At the end of Q4 2023, the consumer loan portfolio hit $3.65 billion, up 30% year over year. Ultimately, revenue was 24% higher YOY.
easyfinancial witnessed record revenue of $299 million, which was 27% higher. The loan portfolio became a little more defensive, with 42% of the loan portfolio being secured, up from 39%. There was a record volume of originations in automotive financing. Additionally, the average loan book per branch increased by 18% to $5.7 million.
The weighted average interest rate on consumer loans was 30.3%, down slightly from 30.5%. So, the Liberal government’s plan to cut the maximum allowable interest rate of 35% (or lower) will have less of an impact on a large non-prime consumer lender like goeasy.
easyhome saw much milder revenue growth of 3% to $38.6 million, however, it was able to increase the operating income by 8% to $9.4 million.
For 2023, goeasy reported funding record loan originations of $2.71 billion, up 14% versus 2022. The consumer loan receivable portfolio ended the year at $3.65 billion, 30% higher YOY. For the year, revenue rose 23% to $1.25 billion, while the adjusted operating income climbed 33% to $369 million, which suggests a good control of costs. The adjusted earnings per share was 23% higher to $11.55, with the return on equity at 25.9%.
Investing takeaway
Through 2026, management forecasts a midpoint revenue growth rate of about 12.9%, with net charge-offs improving to about 8.25% and the operating margin expanding to about 41%. Ultimately, it expects 21% to serve as a base for the return on equity.
After reporting earnings, the stock rallied 8% higher on Wednesday, closing at $169.80 per share. It remains a fairly priced dividend stock with double-digit earnings growth potential over the next few years. As if to highlight its strong growth prospects, goeasy stock raised its dividend by almost 22%, marking its 10th consecutive year of dividend growth. This starts off investors with a decent dividend yield of north of 2.7% for a growth stock.
