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Welcome to a multi-part series where I break down the fundamentals of some of the most popular TSX-listed stocks! Until today is easy (TSX:GSY), a Canadian alternative lending platform.
Although one of the best performers in 2021, goeasy has fallen on hard times recently, having lost -20% in its share price since the start of the year. Many Canadians who bought goeasy around its 52-week high at $218.35 per share are currently suffering heavy losses, with the stock currently trading at $140.28.
context
GSY provides non-preferential leasing and lending services to consumers in Canada, operating through two segments, Easyfinancial and Easyhome.
Easyfinancial provides unsecured and real estate secured installment loans; personal, real estate and car loans; point-of-sale and small business financing; and value-added services, while Easyhome rents household furniture, appliances, electronics, computers and provides unsecured loan products to retail consumers.
Fundamentals
GSY is a growth stock, so we want to focus on metrics that attempt to measure the pace and consistency with which the company is improving its revenue, earnings, and profitability.
Recently, goeasy saw revenue growth of 0.09% over the past 12 months, which is remarkably stable from its pandemic highs. For many growth stocks, flat trends like this are a warning sign that the company may not be able to meet market expectations.
At the operational level, goeasy has experienced a deterioration in its operating cash flow per share of -1.94% over the past five years. We also saw the company’s operating profit increase by -0.21%, and its EPS increase by 2.16% over the year, which is not quite what we expect from a stock of growth.
Regarding profitability, GSY currently has an operating profit margin of 55%, a net profit margin of 32%, a return on equity of 38.26% and a return on assets of 9.87%, which which is healthy.
Evaluation
I don’t have the time or space here to do a full discount cash flow analysis, but we can look at various valuation metrics to get an idea of what the intrinsic value of the stock should be. .
GSY is currently trading with an enterprise value to EBITDA multiple of 9.01 and an enterprise value of approximately $4.08 billion, which is average compared to its industry peers. financial and certainly more reasonable than that of the 5 big banks.
As of last year, goeasy’s book value per share is $48.14, with a price-to-earnings ratio of 10.93, a price-to-sales ratio of 3.48 and a price-to-free cash flow ratio of -49.15. These are all very reasonable, with the exception of the price to free cash flow ratio, but otherwise imply a fair current valuation.
The insane takeaway
The 52-week low for GSY is $121.25, which is a useful technical indicator for determining resistance levels or a potential floor. In my opinion, I think goeasy is due for a rebound. The stock currently looks oversold, especially after the market sold off last month.
Despite the rising interest rate environment, goeasy’s fundamentals are strong and the stock has fallen quite significantly from all-time highs. Investors looking for a growth play in the TSX financial sector may consider establishing a position in goeasy at its current price.
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