Goeasy Ltd stock analysis:
Goeasy Ltd. is a financial company that is split into to different different areas:
Easyhome sells furniture and other larger “home” items on a rent-to-own contract. Easy Financial provides loans to customers, who are unable to qualify for financing or loans through traditional means (bank, line of credit, etc). Both sides of the business focus on consumers with poor credit and limited options. The rates are slightly below the maximum allowed, and they market themselves as a better alternative to a payday loan(which they are) but don’t let that fool you, the rates are HIGH. That said, they have a strong growing business, and whatever your opinion on high cost loans are – I am looking at this strictly from an investing opportunity perspective.
I am going to focus specifically on easyfinancial, since this is the biggest profit center of the business, and the fastest growing. In fact, revenue for easyhome has slowly been decreasing over the years – but because of the success of easyfinancial the company has continued to blow away expectations.
Goeasy tends to fly under the radar a little bit. They aren’t included in a lot of Funds/ETF’s, they don’t get talked about a ton by the “experts” or even in the personal finance space online – yet they are quietly and quickly growing at an exceptional pace. In 2019, their loan portfolio surpassed 1 Billion dollars. They currently have over 400 locations across 10 provinces, and employ just under 2000 people. Since 2001, Goeasy has a return of over 6500%!
*Source* Goeasy investor presentation 3rd Quarter 2019.
Goeasy future growth
Although goeasy has already experienced hyper massive growth over the past decade, I believe there is a good case to be made they are just getting started. First of all, currently over 90% of their loans originate at their retail branches – I believe they can reduce costs, and increase acquisition by starting to generate a lot more consumers online/working with partners online.
Goeasy has already started partnering with other brands to work on some future deals.
- In September, goeasy partnered with Paybright which will offer consumers the chance to finance products at the point of sale through easyfinancial. You can read the full press release HERE. Paybright has already partnered with close to 5000 merchants across the world.
- Just last month Mogo & goeasy entered into a partnership as well, which will mean some Mogo customers will have their loans funded from easyfinancial(for a fee paid to Mogo) – but the customers will become easyfinancial customers. This opens up a new acquisition stream of customers, and I expect easyfinancial to continue to make deals like this in the future.
- The majority of loans are being extended to “new” customers. Which typically means higher acquisition costs and higher bad debt. As their loan book continues to grow, a higher mix will be repeat customers, which should bring the costs and risk down significantly. Also, as each day passes, they gather more data on their customers and can improve the business dramatically. Data is king in this game, and goeasy has almost 10 TB of data on over 3.51 million applications.
Goeasy Financial possible headwinds
The only real threat I see to the business going forward is regulation. Currently 91.4% of all loans originating from goeasy are at an average interest rate of 43.5%. The good news (for them) is the federal interest rate cap in Canada hasn’t changed in almost 40 years, and goeasy is constantly in talks with governing bodies and industry associations to ensure they are able to have conversations and input if or when any rules do change.
Goeasy is also in the process of introducing different products to attract new customers at lower interest rates, while at the same time giving their current customers an opportunity/incentive to slowly upgrade their interest rate (as they pay back their loans). According to the most recent investor presentation 33% of customers graduate to prime credit, and 60% of customers improve their credit score.
Another potential headwind that a lot of analysts are bringing up is a possible recession, but honestly, I don’t think a recession will hurt them, in fact it may actually help them with acquisition as more and more people may be in need of financing options.
Goeasy Stock metrics
- Currently trading at an all time high, however still only trading at 13-14 x Earnings
- 22.7% Compounded annual growth rate for EPS. Current EPS of 4.74
- Dividend Yield: 1.91%. Goeasy has raised the dividend for 5 consecutive years, most recently by 38%
- Looking at just easyfinancial, revenues have grown from $101 Million in 2014 to $443 Million in 2018. Total revenues (including easyhome) have gone from $259 Million to $582 Million over the same time period.
Goeasy has a history of achieving and exceeding it’s financial targets. In fact, in 2018 they revised their targets after exceeding their initial targets – only to achieve all of those as well. They have some pretty agressive targets over the next 3 years, but based on their history I see no reason why they won’t achieve them.
One last thing I like about goeasy is that insiders own almost a third of the company. They also recently announced a share buy back plan. With a payout ratio of under 30%, and increasing revenues & EPS, they can either increase the dividend or buyback shares(or both) with ease.
I bought 256 shares of goeasy ($GSY) on August 14 after they had dipped slightly. I picked up my shares for $51.30, and as of today EXACTLY 3 months later, the stock hit an all time high $65.05, I am currently up 26.82%! I am long goeasy, and plan to hold or add if it dips again. I’m sure in 5 years today’s price will still look good, but I am hoping for a bit of a pullback before i pull the trigger again.
Do you own Goeasy? Have you looked at it? What do you think?