goeasy Stock: an undervalued engine of growth (OTCMKTS: EHMEF)

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Investment thesis

The 40% crash in the share price (see chart below) of goeasy (OTCPK:EHMEF) over the past 6 months has provided an excellent buying opportunity.

Goeasy stock 6 month price chart

Looking for 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 a high profit margin of 43.2% while having a very healthy current ratio of 15.3. EPS growth has not only been high at 28.1% over the past 10 years, but has also been consistent with only one year of decline (see chart below).

All figures are in Canadian dollars.

goeasy EPS for 10 years

easy growth of EPS (FastGraphs)

Business background

goeasy operates through two main divisions: easyfinancial and easyhome. the recent acquisition of Lendcare reports under the easyfinancial business segment. easyfinancial offers installment loans to non-preferred borrowers who may not qualify for traditional loans from major Canadian banks. Loans range from $500 to $50,000. The total loan return average of 42.1% in 2021. Due to the less advantageous nature of the loans, the charge rate was 8.8% in 2021. Lendcare specializes in financing consumer purchases such as automotive, healthcare, home improvement housing and motor sports.

easyhome offers lease financing for the purchase of furniture, appliances and electronics to customers who may not be able to purchase through traditional means. easyhome represents a small part of the company with 18% of consolidated turnover 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) has gone public. This added an additional $16 million and $8.3 million of net income in Q4 2021 and Q4 2020 respectively. That brings diluted adjusted EPS to $2.76 from $2.90. On an annual basis, 2021 EPS was $14.62 versus $10.43 after adjustment. This will make 2022 a slower growth year since these were one-time events. There remains a performance-based Affirm share count that may add to EPS in the future, but I couldn’t find details on when this might be triggered in the goeasy filings. Average analyst estimates for 2022 EPS is $11.97. This would show a decline in EPS but organic growth remains strong. This recent organic growth shows that growth is not slowing down and that the current low P/E offers an attractive discount for the company.

The quarterly dividend has been increased 38% to $3.64 and 444,000 shares have been redeemed and canceled since November 2021. Dividend increases over the past decade have been impressive. The chart below also shows consistent stock buybacks each year. These buybacks will further increase EPS in subsequent years.

easy dividend growth

easy dividend growth (Investor Presentation 2021)

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 $300 million to $900 million. This liquidity should fuel organic growth until the fourth quarter of 2024.

Is the company ethical?

Does Goeasy charge unethically high interest rates or provide a valuable service to improve the customer’s financial health? I leave this answer to the reader, but offer some pros and cons below:


  • 1 in 3 customers obtain preferential credit within 12 months of borrowing from easyfinancial
  • 60% of customers improve their credit score within 12 months of borrowing from easyfinancial
  • goeasy provides many items to better educate customers on how to improve their financial situation

The inconvenients:

  • Customers pay very high interest rates and can stay locked into the loan for longer than the original term
  • Related products such as insurance can increase the overall cost of the loan
  • The BBB has a low 1.2/5.0 evaluation of customer reviews for the company, but holds an A+ rating.

goeasy competitors

goeasy doesn’t have many direct competitors in the unpreferred omnichannel lending space in Canada that are public. Fairstone and LoanDirect are both private companies, so it is not possible to present comparable data. Ferratum was in space but no longer offers loans in Canada. Mogo was a smaller competitor that offered loans, but has since sold its loan portfolio go easy.

Payday lenders such as Money Mart, CashMoney, etc. offer a slightly different product at much higher interest rates and often for shorter terms. Payday loans are often for 2 weeks. Credit unions such as Vancity grant loans but often for customers with higher credit scores and at lower rates.

easy competitors

easy competitors (goeasy 2020 presentation)

In the secured loan market, easyhome competes with specialist credit card companies such as Flexiti (private) and other department store cards. Online, they compete with but also partner with PayBright. PayBright serves as a lead generator for goeasy, but also offers other payment methods, such as installment credit card. PayBright was acquired by Affirm in 2020. The space continues to evolve but there has been heavy consolidation and goeasy is one of those consolidators.

Upstart (UPST) does not yet operate in Canada, but could pose a threat in the future if it enters the Canadian market. Their machine learning models may prove to be a cheaper and less risky way to make loans compared to more traditional lenders. Upstart also partners with traditional banks instead of holding loans to avoid loan write-offs.

There are pure online lending companies such as best egg and Spring Financial but these seem to be on a smaller scale and not competitive threats.

This shrinking competitive landscape strengthens the case for goeasy as smaller competitors are being squeezed out. With fewer competitors, the valuation becomes more compelling.

Valuation of goeasy shares

Growth at a reasonable price (GARP) investors look for a PEG below 1.0 to find value. If we calculate the current PEG usingg (PEG = P/E growth rate / EPS) we obtain a PEG of 0.30 (8.45 / 28%). It is far below a fair value PEG of 1.0.

As an investor, I want to have 5-year total returns greater than 100%. To calculate the 5-year total return, I will take the current Adjusted EPS (TTM) of $10.43 and expand it at the historical 10-year EPS growth rate of 28% for 5 years. To be even more conservative, I will use an annual EPS growth rate of 20% (see table below). Historical returns are not always repeated in the future, but due to goeasy’s consistent performance, I will use this 20% annual rate.

Year EPS projected to grow by 20% per year
2021 (current) $10.43
2022 $12.52
2023 $15.02
2024 $18.02
2025 $21.63
2026 (year 5) $25.95

(author’s calculations)

To calculate a possible share price for Year 5, I will use Year 5 EPS of $25.95 from the table above multiplied by goeasy’s 5-year average P/E of 16.4. This gives a stock price of $425.58. Based on the current price of $127.27 and a 5-year price of $425.58, the 5-year total return would be 234%. This 5-year return is well above my hurdle rate of 100%.


Rising interest rates

The Bank of Canada recently rising interest rates from 0.25% to 0.50%. goeasy’s debt financing is often indexed to the Canadian dollar offering rate (“CDOR”) plus a premium. goeasy uses interest rate swaps to generate fixed rate payments. The company also uses hedges for US dollar denominated debt. Although these hedges reduce debt volatility, they come at a cost in a rising rate environment. This will likely increase the cost of debt over the next 1-5 years.

Regulatory changes

The payday loan market has seen significant regulatory changes in recent years to reduce the high cost of these loans. There are additional regulatory measures, by province, that add costs to goeasy. A coming change High Cost Credit Legislation (“HCCL”) in British Columbia on May 1, 2022 may increase goeasy’s costs. More details about HCCL can be found here.

Untested Loan Ledger

The company’s easyfinancial segment was very small during the financial meltdown of 2008 (see the dark blue bars in the chart below). Most business was then secured in the easyhome segment. Easyfinancial’s unsecured loans have yet to be tested in a major financial event, but have performed well during the recent pandemic.

goeasy - Breakdown of income between easyfinancial and easyhome

goeasy IR website

The company store growth projects from 15 to 20 in 2022 and that the number drops to only 5 more stores in 2024. This may signal a saturation of the market for physical stores or show a migration of loans granted online.

While there are risks, the steep 48% P/E discount more than compensates an investor.


goeasy has a long and steady history of growth with few direct competitors in the Canadian non-senior loan market. They have been a business consolidator and achieve economies of scale. Their dividend continues to grow by more than 30% per year and the company frequently conducts share buybacks. The recent 40% decline in share price provided an opportunity to buy goeasy on sale at a 48% discount to historical P/E ratios.

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