Over the past few years, goeasy (TSX:GSY), the specialty finance stock, has been one of the best growth stocks on the TSX.
Not only has it grown its operations rapidly, and consequently, its share price, but goeasy has also navigated this uncertain environment well, especially when the market was expecting significant impacts to its business.
When inflation began to surge in late 2022, central banks began increasing interest rates. As a result, there was significant concern from the markets that goeasy would be heavily impacted.
After all, goeasy’s business model is centred around offering higher-interest loans to consumers with below prime credit scores, essentially higher-risk loans.
Therefore, the fact that goeasy has not only managed to weather the storm and keep its charge-off rates well within its target range but it’s also managed to continue growing its loan book and profitability rapidly is truly impressive.
So, now, with goeasy again back in favour with investors and the stock trading more than 100% higher than its May 2023 low, many investors will wonder if it’s too late to buy goeasy, the incredible Canadian growth stock.
Why did goeasy sell off so significantly?
As I mentioned above, when both inflation and interest rates began to rise rapidly and consistently, there was significant concern that goeasy’s profitability would be impacted.
Many investors, analysts, and economists alike believed a recession was around the corner — something that typically impacts all lenders and causes higher delinquencies on their loans.
In goeasy’s case, the impacts were expected to be even worse due to the higher-risk loans it offers and the below-prime borrowers it services that cannot get loans at traditional banks.
However, as impressive as goeasy is as a growth stock, it’s been even more impressive over the years in managing its risk, a major contributor to its growth in profitability.
So, although many initially expected goeasy to see huge impacts on its business, as goeasy continued to report strong earnings growth its share price not only began to recover, it’s now rallying significantly.
Why is goeasy one of the best growth stocks to buy?
Managing its risk has been key for goeasy’s growth. Of course, it needs to offer more loans and bring in more revenue to grow, but if delinquencies and bad debt expenses rise, the growth in its profitability will be much more muted or potentially even negative.
Therefore, the fact that goeasy has consistently kept charge-offs within its target range is just as, if not more important than its strategies for expanding its operations.
That said, the consistent execution and strong performance of goeasy have led to mind-blowing numbers.
In the last five years, goeasy’s revenue has increased by a whopping 147%, or a compound annual growth rate (CAGR) of 19.8%. Even more impressively, though, its normalized earnings per share (EPS) increased by 299%, or a CAGR of 31.9%.
This shows exactly why goeasy is one of the top growth stocks on the TSX, especially after it’s proven time and again, and how well it can manage its loan books and keep charge-off rates at a manageable level.
Is it too late to buy the impressive growth stock?
Although the stock has rallied significantly over the past year, there is still a tonne of growth potential going forward for goeasy, especially since it’s just a $3 billion company operating in a niche segment of the consumer loans industry.
Even in this highly uncertain environment, analysts still expect goeasy to grow its sales by over 20% this year and nearly 15% next year, not to mention the potential it has once the economy has fully recovered and interest rates are reduced.
Furthermore, that significant revenue growth is expected to continue to allow goeasy’s normalized EPS to continue growing rapidly. In fact, right now, analysts expect a 19% increase in its normalized EPS each of the next two years.
Moreover, although goeasy stock has been rallying recently, it still trades below its all-time high. Not to mention, today, it trades at a forward price-to-earnings ratio of just 10 times. That’s not just ultra-cheap for such an impressive growth stock. It’s also below its five-year average of 10.5 times, making now the perfect time to buy goeasy before it continues to get more expensive.
