Goeasy Ltd. is a Canadian public financial company based in Mississauga, Ontario. It trades under the ticker EHMEF on the OTC Markets and GSY on the TSE. Goeasy provides alternative financial services to many Canadians through its two primary services: easyfinancial and easyhome. Goeasy’s easyfinancial segment specializes in offering personal, home equity, and auto loans to non-prime customers. Included under this segment is Lendcare, which concentrates
on financing consumer purchases in automotive, power sports, and home improvement categories. On the other hand, its easyhome segment offers a variety of products like furniture and durable goods on a lease-to-own basis. During the initial months when the COVID-19 crisis began, Goeasy’s stock price was hit quite hard. However, the Canadian Government’s stimulus and the positive outlook in the Canadian housing market have led to a 600% increase in Goeasy’s stock price from its bottom due to the robust demand for subprime loans.
Are Goeasy’s Fundamentals Strong?
Goeasy’s recovery from the worldwide pandemic has been extraordinary. Their net income, revenue, and earnings have hit all-time highs amid the increase of consumer indebtedness in Canada. Goeasy’s profit margins were 20% in 2020 compared to 10% in 2019, and their cash flow from operations increased more than 200 million from 2019 to 2020. If I had to pick one company that benefited the most from the economic recovery after the economic downturn: it would be Goeasy. Furthermore, Goeasy’s return-on-equity was 35% in 2020: more than doubling the long-term average return on equity of the S&P 500 at 14%. Clearly, Goeasy is providing shareholders with a great return on their capital. Moreover, Goeasy has an incredible track record in regards to its growth in revenue. Since 2001, revenue has grown at a compound annual growth rate of 12.8% while having no years where revenue decreased year-over-year since 2002. In addition, Goeasy’s current payout ratio is 16%, which means that the company’s dividend payments are well covered by earnings. These are all positive signs moving forward for Goeasy, and we could continue to see Goeasy’s fundamentals grow stronger if the demand for subprime loans increases.
What Insight Can We Gain From the Technicals
Since the start of the year, Goeasy has been on a continuous uptrend. Throughout the year, Goeasy continued to make lower lows and higher highs, contributing to its stock price growing more than 100% year-to-date. Comparatively, the S&P/TSX Composite Index is up approximately 23%. To determine an area of value, we will look at two key indicators: the relative strength index and the 50-day moving average. The Relative Strength Index (RSI), a momentum indicator, has been trading closer to the higher levels than the lower levels. According to Fidelity, the RSI tends to trade in the 40 to 90 range during an uptrend, with the 40 level acting as support. From the graph below Goeasy's stock chart, we can see that every time the RSI hits around to 40 level, it bounces back, signaling this area is acting as a support. Also, the 50 moving average (in blue) is another support level for Goeasy. Whenever Goeasy’s stock price touches the 50-day moving average, it bounces off it and remains above this level. Based on these two support levels, investors can look for opportunities when Goeasy's stock price is near these two support levels to enter into a position.
Can Goeasy Maintain Its Upward Trend?
As I have stated, Goeasy has been significantly benefiting from the uptick in the amount of debt taken on by consumers. Goeasy has been able to have a stellar performance this year due to the high-interest rates involved with subprime lending. The demand for subprime lending could increase if the Canadian Government relief programs end and banks begin to increase interest rates. If this is the case, Canadians may switch to alternative lending solutions such as Goeasy, which offers consumers lending, albeit at very high rates. The current economic situation may lead to continued earning growth rates at double-digit rates. However, with high risk comes high reward. If an economic downturn were to occur, subprime lending would sharply fall, leading to a reduction in revenue. Moreover, the default rate would likely rise as consumers would not have the funds to make the payments on the loans resulting in losses for the company. For instance, in the last two recent recessions - 2009 and 2019 - Goeasy’s stock price has respectively fallen approximately 70% and 55%. Goeasy is clearly not a recession-proof stock, but if the economic boom continues, investors can presume that Goeasy’s stock price will continue to rise.