Over the past few weeks, the Canadian equity markets have witnessed healthy buying, with the S&P/TSX Composite Index rising 17.9% from last month’s lows. However, the following two growth stocks have failed to participate in this recovery rally and are trading at reasonable valuations. Given their healthy growth prospects, these two stocks offer attractive buying opportunities.
goeasy
goeasy (TSX:GSY) offers leasing and lending services to subprime customers through easyhome, easyfinancial, and LendCare brands. The company has failed to participate in the recent rally and is trading around 8% lower for this year. It has also lost over 27% of its stock value compared to its 52-week high. Its weak first-quarter earnings, with the company’s adjusted EPS (earnings per share) falling 8% year over year, have weighed on its stock price. The lower yield on consumer loans and increased allowance for credit losses amid an uncertain macroeconomic environment have weighed on its earnings.
Amid the weakness, the company’s valuation has declined to attractive levels, with its NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples at 1.4 and 7.8, respectively.
Moreover, the Bank of Canada, Canada’s central bank, has cut interest rates seven times since June, lowering its benchmark interest rate to 2.75%. Few economists are predicting two more rate cuts this year. Falling interest rates could boost economic activities, thus driving credit demand and expanding the addressable market for goeasy. The Mississauga-based subprime lender is expanding its product offerings, adding new delivery channels, and implementing strategic initiatives to grow its loan portfolio, thereby supporting its financial growth in the coming quarters.
Amid its growth initiatives, goeasy’s management projects its loan portfolio and revenue to grow at an annualized rate of 18% and 11.4% through 2027. Amid these healthy performances, the management expects to deliver a return on equity of over 23% annually. Considering its healthy growth prospects and discounted stock price, I am bullish on goeasy.
WELL Health Technologies
WELL Health Technologies (TSX:WELL) is another growth stock that has been under pressure this year, having lost more than 40% of its stock value. The ongoing investigation into the billing practices of WELL Health’s subsidiary, Circle Medical, in the United States appears to have unsettled investors, resulting in a significant decline in the company’s stock price. Amid the selloff, the company trades at NTM price-to-sales and NTM price-to-earnings multiples of 0.7 and 9.9, respectively.
However, WELL Health reported excellent first-quarter earnings earlier this month, with its top line growing by 32%. Solid organic growth and strategic acquisitions drove revenue growth. The company experienced 1.6 million patient visits during the quarter, representing a 23% increase from the same quarter in the previous year.
Amid top-line growth, its adjusted earnings before interest, tax, depreciation, and amortization increased 36% to $27.6 million. However, its adjusted net income fell 56.4% to $7.5 million, primarily due to an $11.3 million gain on the sale of Intrahealth in the previous year’s quarter.
Moreover, the demand for WELL Health’s products and services could continue to rise amid the increased digitization of clinical procedures and the growing popularity of telehealthcare services. Furthermore, the company’s new product launches and strategic acquisitions could support its financial growth in the coming quarters. Earlier this month, the company introduced Nexus AI, an artificial intelligence-powered documentation solution, across Canada. Continuing its acquisition activities, the company has also signed 11 letters of intent, which could add $65 million to its annualized revenue. Considering these healthy growth prospects and its discounted stock price, I expect WELL Health to deliver superior returns over the next three years.
