goeasy Stock: An Undervalued Growth Engine

goeasy Stock: An Undervalued Growth Engine

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The 40% collapse in the share price (see graph below) of goeasy ( OTCPK:EHMEF ) in the last 6 months has provided a great buying opportunity. Seeking Alpha goeasy is trading at a P/E of 8.6, a 48% discount to its 5-year average P/E ratio of 16.5. Beyond the low P/E, goeasy has a high return on equity of 39.7% and high profit margin of 43.2% while having a very healthy current ratio of 15.3. The EPS growth has not only been high at 28.1% over the last 10 years, but has also been consistent, with only one down year (see chart below).

All figures are in Canadian dollars. goeasy EPS growth (FastGraphs) Company Background

goeasy operates through two main divisions: easyfinancial and easyhome. The recent acquisition of Lendcare reports under the easyfinancial business segment. easyfinancial provides installment loans to non-prime borrowers that may not qualify for traditional loans from large Canadian banks. Loans range from $500 to $50,000 . The total yield on loans averaged 42.1% in 2021. Due to the lower non-prime nature of the loans, the charge-off rate was 8.8% in 2021. Lendcare specializes in financing consumer purchases such as automotive, healthcare, home improvement, and powersports.

easyhome provides lease-to-own financing for household furniture, appliances and electronics to customers that may not be able to purchase through traditional means. easyhome makes up a smaller part of the company with 18% of consolidated revenue in 2021. 2021 Highlights

In 2019, the company acquired shares in PayBright in a private transaction. PayBright was since acquired by Affirm and Affirm ( AFRM ) went public. This added an extra $16M and $8.3M of net income in Q4 2021 and Q4 2020 respectively. This brings adjusted diluted EPS to $2.76 down from $2.90. On a full-year basis, 2021 EPS was $14.62 vs. $10.43 when adjusted. This will make 2022 look like a slower growth year since these were one-time events. There remains a performance-based number of Affirm shares that could add to EPS in the future but I could not find the details on when that may be triggered in goeasy filings. Average analyst estimates for 2022 EPS are $11.97 . This would show a decline in EPS but organic growth remains strong. This recent organic growth shows that growth is not slowing and that the present low P/E offers a compelling discount for the company.

The quarterly dividend was increased 38% to $3.64 and 444,000 shares were repurchased and cancelled since Nov 2021. The dividend increases over the last decade have been impressive. The chart below also shows the consistent share buybacks in every year. These buybacks will further boost EPS in subsequent years. goeasy dividend growth (2021 Investor Presentation) In January 2022, the company reduced the fully drawn weighted average cost of borrowing by 0.6% from 4.8% (Q4 2020) to 4.2%. It also increased the revolving warehouse facility from $300M to $900M. This liquidity should provide funds for organic growth out to Q4 2024. Is The Company Ethical?

Is goeasy charging unethically high-interest rates or are they providing a valuable service to improve customer’s financial health? I leave that answer up to the reader but offer some pros and cons below:

Pros: 1 in 3 customers graduate to prime credit within 12 months of borrowing from easyfinancial

60% of customers improve their credit scores within 12 months of borrowing from easyfinancial

goeasy provides many articles to better educate customers on how to improve their financial situation

Cons: Customers pay very high-interest rates and may get stuck in the loan longer than the initial term

Related products such as insurance may increase the overall cost of the loan

The BBB has a low 1.2/5.0 customer review rating for the company but holds an A+ rating.

goeasy’s Competitors

goeasy does not have many direct competitors in the non-prime omnichannel lending space in Canada that are public. Fairstone and LendDirect are both private companies so showing comparable data is not possible. Ferratum was in the space but no longer offers loans in Canada. Mogo was a smaller competitor that offered loans but has since sold its loan portfolio to goeasy.

Payday lenders such as Money Mart, CashMoney etc. offer a slightly different […]

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