It’s not very often that you see a stock rise 244% in just a few short years. When you do see such a gain, it’s usually a short-lived one observed in a bubble that quickly reverses. For the most part, it isn’t worth paying attention to the fact that a stock rose a lot in the past: it’s the amount of earnings per dollar you invest that counts. However, there is one Canadian financial stock that rose 244% in four short years which is actually still rather cheap after the rally. In this article, I will explore this remarkable multi-bagger that still trades at just seven times earnings.
EQB Inc.
EQB Inc (TSX:EQB) is a Canadian alternative lender and online bank that operates on a branchless model. By not having branches, it saves money. It also doesn’t suffer from all that big a disadvantage in retaining customers because of this, as 93% of Canadians these days are comfortable with online banking.
High growth
One factor that EQB has in its favour right now is high growth. In its most recent quarter, it delivered:
- $771 million in interest income, up 34% year over year.
- $256 million in net interest income, up 17.4%.
- $104 million in net income, up 131%.
- $2.68 in diluted earnings per share (EPS), up 120%.
On the whole, it was a pretty good showing. One factor that affected the earnings was EQB’s choice to change its fiscal year. The “year over year” changes above are from the December 2022 quarter to the January 2023 quarter. According to the earnings press release, growth would have only been 12% using the exact same measurement periods in each year. Nevertheless, the numbers show that EQB has grown a lot since late 2022, a period of time in which not even 1.5 years has elapsed.
Sticky deposits
Another factor that EQB has going for it is “sticky” deposits; that is, deposits that can’t just be withdrawn overnight. Unlike most banks, which offer mostly checking accounts, most of EQB’s deposits are guaranteed investment certificates (GICs). These can’t be withdrawn until they mature. As a result, EQB has a sky-high liquidity coverage ratio of 339%, even though its ratio of cash and securities to deposits is only 10%.
Valuation
As we’ve seen, EQB is growing quickly and has a very good liquidity coverage ratio. These are features that normally cause bank stocks to trade at high multiples. Fortunately, in EQB’s case, the expensive valuation is not present, as the bank trades at:
- 7 times earnings.
- 2.8 times sales.
- 1.2 times book value.
By the standards of growth stocks (which EQB certainly is), this is cheap as dirt. So, EQB stock appears to offer a lot of value per dollar invested.
Foolish takeaway
Compared to other TSX banks, EQB has grown like wildfire over the years. Although things are starting to slow down a bit, the bank is still performing well while being cheap. On the whole, it’s a very attractive value proposition.
