Canadian investors love a good bargain, especially when the markets take a tumble. But just because a TSX stock drops in price doesn’t automatically mean it’s a smart buy. When share prices fall, it can either signal trouble ahead or simply a short-term hiccough. One TSX stock facing a notable drop lately is goeasy (TSX:GSY). With its shares down significantly, some investors are wondering if now’s the time to step in.
What happened?
goeasy isn’t exactly your typical financial institution. It provides lending services primarily to Canadians who don’t qualify for traditional bank loans. That means customers who might have less-than-perfect credit scores or are looking for quick, flexible loans. It also offers lease-to-own furniture, appliances, and electronics. This unique niche has historically given it strong profits and steady growth. But recently, the market hasn’t been too kind.
Shares of goeasy have fallen sharply in recent months. In fact, its stock price is currently hovering around $96, down from its 52-week high of about $136 per share. That’s a significant drop, and it understandably makes some investors nervous. The big question, does this dip signal real issues at goeasy, or is the market overreacting, presenting investors with an opportunity?
Into earnings
To answer that question, let’s look at its most recent financial results. For the quarter ending Dec. 31, 2024, goeasy reported revenue of $321 million, up 21% compared to the same quarter a year earlier. Even more impressively, it delivered earnings per share (EPS) of $3.56, comfortably beating analyst estimates.
Yet despite these solid results, investor sentiment has cooled. The main reason behind this caution relates to the broader Canadian economy. Inflation, higher interest rates, and worries about increased consumer debt have made investors nervous about goeasy’s future. After all, it targets consumers who often have less financial flexibility. With higher interest rates squeezing household budgets, investors fear loan defaults could rise and potentially hurt profitability.
But let’s look carefully at these worries. First, loan delinquencies remain within manageable levels, according to its recent reports. goeasy’s management continues to stress prudent lending practices, tightening its standards slightly to offset any potential uptick in customer defaults. It also has a solid record of managing credit risk in challenging economic times. Over the years, even during economic downturns, goeasy has shown resilience and solid management skills.
Value and income
On top of solid fundamentals, goeasy offers an attractive dividend. Right now, it pays investors about $4.08 per share annually. The recent price drop gives investors a yield of around 4.25% at writing. That’s certainly appealing for anyone looking for income alongside growth potential. Plus, goeasy has steadily increased this dividend over the years. Its payout has consistently grown, a sign of financial stability and confidence from management.
Another aspect to consider is the TSX stock’s valuation. With shares trading at roughly seven times its trailing earnings, goeasy looks relatively cheap compared to historical valuations. Its lower price-to-earnings (P/E) ratio suggests the market might be overly pessimistic, overlooking goeasy’s proven track record of profitable growth. In short, shares might be on sale simply due to overall economic concerns rather than company-specific weaknesses.
Of course, goeasy isn’t entirely without risk. If the Canadian economy weakens significantly or stays weaker for longer, consumer defaults could indeed rise. That would impact profits in the short term. Investors need to keep an eye on quarterly loan performance and delinquency trends. Staying vigilant and responsive to any signs of financial stress among its customer base will be key.
Bottom line
Overall, the recent sell-off in goeasy stock might just be overdone. Investors appear to be pricing in an overly pessimistic scenario, forgetting its history of navigating tough economic climates. With shares trading significantly below recent highs, goeasy may represent a genuine bargain opportunity right now.
In investing, as in life, not every discount is worth it. But with solid earnings, an attractive dividend, and strong management, goeasy appears to have the right ingredients to bounce back once investor nerves settle. For those willing to look beyond short-term fears, goeasy could prove to be a hidden gem among beaten-down TSX stocks today.
