Legendary investor Warren Buffett once said, “Be greedy when others are fearful.” Few Canadian stocks embody this spirit better right now easy (TSX:GSY).
With sentiment crushed, fear running high and the share price falling sharply, this non-prime lender has become one of the most attractive opportunities on the TSX. Here are three reasons why investors might want to buy goeasy like there’s no tomorrow.
1. Fear dominates stocks – and that’s opportunity
Goeasy shares have fallen more than 40% since hitting a 52-week high in August – a staggering decline for a company with such a long track record of execution.
The first decline began in September after a short seller published allegations accusing the company of manipulating accounting practices to boost profits and mask potential credit losses. goeasy dismissed the claims as “false and malicious,” but the damage to investor sentiment had already been done.
The weakness continued in November following the company’s third-quarter results, which showed adjusted earnings per share of $4.12 – lower than analyst expectations of $4.64. For a stock that was already under pressure, even a small miss was enough to trigger further selling.
Add to that a cooling Canadian economy and a rising unemployment rate – key factors for any lender, especially one targeting non-prime borrowers – and you get the perfect recipe for fear-driven selling. Canada’s unemployment rate has risen from a low of 4.9% in 2022 to 6.9%, heightening investor concerns about the performance of consumer loans.
But this is precisely the moment when long-term opportunities arise. Market fear does not distinguish between temporarily weak sentiment and a permanent deterioration in business activity. Patient investors often step in when pessimism is at its peak – and right now, pessimism is at its peak.
2. A proven growth machine that trades at clearance prices
While many investors focus on the negative headlines, they risk overlooking goeasy’s remarkable long-term track record. Over the past decade, the stock has turned a $10,000 investment into roughly $80,000, for an annualized return of nearly 23%. Over the same period, the company has achieved an impressive average return on equity (ROE) of 23.1%.
Even more remarkable, during the 2020 pandemic – a period of extreme economic stress – goeasy delivered an eye-popping ROE of 35.2%. The company has repeatedly demonstrated its ability to navigate difficult circumstances.
Today, the stock trades at less than $123 per share at a blended price-to-earnings (P/E) ratio of about 7.7, a dramatic 35% discount to its long-term average valuation. If it just returns to that normal level, the stock could rise 59%. And based on the current analyst consensus price target of around $208.90, the shares have around 70% upside potential.
In other words, this is a growth stock that’s priced as if its best days are behind it – despite the company continuing to grow its loan book, earnings and dividend over time.
3. A rare 4.8% dividend sweetener
Not only are shares cheap, but they currently offer a dividend yield of 4.8% – more than double the ten-year average yield of around 2.3%. The high return is not the result of dividend risk; rather, it reflects a low stock price.
The company has increased its dividend for ten years in a row, with an astonishing compound growth rate of around 30%. And going back to at least 2006, the company has never cut its payout.
This is the kind of dividend profile that investors would typically pay a premium for, but today it’s trading at a discount.
Takeaway for investors
goeasy is undeniably volatile, and investors should tailor their positions to their risk appetite. The stock could fall further before the tide turns. But for investors able to withstand short-term turbulence, the combination of fear-driven prices, deeply discounted valuations and a growing dividend makes goeasy one of the most attractive opportunities on the TSX today.
When sentiment finally changes, those who buy during peak pessimism could be rewarded with outsized gains.
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