While tech stocks have been on an absolute tear in the past year, there are companies across several industries that trade at a discount to their intrinsic value. These cheap or value stocks should gain pace once market sentiment improves and deliver outsized gains to shareholders.
Here are two such undervalued TSX stocks I’d buy in May.
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goeasy stock
A company part of the financial lending space, goeasy (TSX:GSY) has already created massive wealth for investors. In the last 20 years, GSY stock has returned 2,320% to shareholders. After adjusting for dividends, total returns are much higher at 3,900%. Despite these monstrous gains, the TSX stock trades 17% below all-time highs, allowing you to buy the dip.
Despite an uncertain macro environment, goeasy increased loan originations by 12% year over year to $705 million in the fourth quarter (Q4) of 2023. This growth led to an expansion in its loan portfolio, which was at the higher end of its forecast at $215 million.
goeasy attributed the growth in loan originations to a higher volume of credit applications across product and acquisition channels, such as unsecured lending, point-of-sale lending, and automotive financing.
goeasy ended Q4 with a consumer loan portfolio of $3.65 billion, up 30% year over year, and increased sales by 24% to $338 million. Moreover, goeasy emphasized the benefits of scale and operating leverage have allowed the non-prime lender to lower borrowing costs for consumers.
The company expects to expand its loan portfolio to $6 billion by the end of 2026. Comparatively, analysts tracking the TSX stock expect its revenue to rise by 17.4% to $1.5 billion and earnings to expand by 23.2% to $16.93 per share in 2024 in 2024. Priced at 11 times forward earnings, GSY stock is cheap, given its growth estimates.
The expansion of profit margins and cash flows should translate to dividend growth, enhancing the forward yield over time. goeasy has raised its quarterly dividends from $0.06 per share in 2005 to $1.17 per share in 2024, indicating an annual growth rate of almost 17% annually.
Dollarama stock
Another quality TSX stock that has delivered game-changing returns to shareholders is Dollarama (TSX:DOL). The discount retailer went public in late 2009 and has since returned a staggering 3,478% to investors.
In fiscal 2024 (ended in January), Dollarama increased its sales by 16.1% year over year to $5.87 billion. The increase in top line was driven by growth in the total number of stores in the last 12 months and rising comparable store sales. Dollarama ended fiscal 2024 with 1,551 retail stores, up from 1,486 stores in fiscal 2023.
Moreover, comparable store sales grew by 12.8%, while the average transaction size was up by a marginal 0.4%. Dollarama emphasized that strong comparable store sales reflect robust demand across product categories.
Dollarama is portioned to benefit from continued positive consumer response to the value it offers through an expansive store network and a wide assortment of products at low fixed price points.
In fiscal 2025, Dollarama forecasts comparable store sales growth to be over the double-digit growth experienced in the last two years, which is exceptional. Priced at 29 times forward earnings, Dollarama stock is expected to expand earnings by 19% annually in the next five years.
