Goeasy (GSY) is a Canadian alternative financial service solution provider that’s been on a magnificent run.
The incredible appetite for BNPL (Buy Now, Pay Later) options, and elevated consumer debt levels, have been major contributing factors behind goeasy’s rally. After soaring over 114% year-to-date, has the easy money already been made?
It’s hard to ignore goeasy’s valuation, which still remains modest after yet another incredible year for the record books. As such, I remain bullish.
At writing, shares of goeasy trade at 13.9 times trailing earnings. For a company that’s continuing to grow its earnings at a stellar rate, such a multiple seems somewhat too good to be true. (See GSY stock charts on TipRanks)
Incredible top- and bottom-line growth, alongside a low price-to-earnings multiple suggest investors see risks ahead, or that they don’t think goeasy’s tremendous earnings momentum is sustainable.
Road Ahead
The early stages of an expansionary cycle tend to accompany a spending surge, especially in durable goods like furnishings and other discretionary “nice to have” items. Over the past year and a half, we’ve witnessed precisely this, as the world economy recovered from the coronavirus recession.
Canadian consumers swiped their credit cards or went to alternative lenders at a higher rate to finance everything from cellphone purchases, to high-end items to furnish a new home.
Goeasy has risen to the occasion, making it easier for cash- and credit-strapped Canadians to finance their purchases.
BNPL firms such as Affirm (AFRM) have become a household name, and as the appetite for consumer loans continues to heat up, alternative financial solution providers like goeasy could continue winning on the back of the BNPL trend.
Still, it’s hard to gauge when the BNPL trend will lose traction. Sooner or later, an economic downturn could bring forth a reversal in its momentum. We’re likely far off from the next structural economic downturn, although it is worth noting that Canada’s GDP did dip slightly into the negatives recently.
As such, goeasy and the broader basket of BNPL firms could continue to post further gains that could be far larger than any losses that’ll accompany the next downturn. Given this likelihood, goeasy’s stock may still prove to be undervalued here.
Wall Street’s Take
According to TipRanks’ analyst consensus rating, GSY stock comes in as a Strong Buy. Out of four analyst ratings, there are four unanimous Buy recommendations.
The average GSY price target is C$193.76. Analyst price targets range from a low of C$182.01 per share, to a high of C$207.01 per share.
Bottom Line
Despite having all Buy ratings on the name, the consensus price target suggests 6.8% downside potential from today’s prices.
Indeed, analysts will either need to hike their price targets, or downgrade their ratings. Given recent momentum and no prominent sore spots, I expect the former.
Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
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