Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99per week for the first 24weeks
Just $1.99per week for the first 24weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Under the Easyhome banner, Goeasy rents appliances, electronics and furniture to those who can’t buy these things outright.

Iriana Shiyan/Getty Images/iStockphoto

Rare is the company with growing earnings these days, so it's a little hard to understand why Goeasy shares get so little respect despite the fact that the company's profits are expanding by double digits.

Goeasy Ltd. is the former Easyhome, a stock I own and wrote about in this space two years ago – a recommendation that yielded a total return of 110 per cent including dividends. I think there is still a lot of money to be made on this investment.

The stock is off its highs, yet earnings have never been bigger. In the latest quarter, for example, Goeasy reported a 19-per-cent increase in revenue to $78-million and, thanks to the operating and financial leverage inherent in this type of business, a 76-per-cent increase in earnings per share to 46 cents.

Story continues below advertisement

Goeasy operates two divisions:

Leasing, under the Easyhome banner, rents appliances, electronics and furniture to those who for whatever reason (typically a lack of credit) can't buy these things outright. This is a stable, nicely profitable but low-growth business. Revenues were essentially flat in the first nine months of the year, as was operating profit.

The other division, Easyfinancial, makes subprime consumer loans. This is the growth engine at Goeasy and the root of its climbing stock price. Through nine months, lending income was almost 50 per cent higher compared with last year. Also worth noting is that lending operating income was almost twice as high as leasing, the traditional business. Last year, the two units were neck and neck.

So Goeasy, which started life as a lessor of furniture, is becoming a subprime lender.

This partly explains the lack of respect for the stock. Quoted at a paltry 12 times trailing earnings against EPS growth of 80 per cent in the latest quarter, the stock doesn't seem loved. The main reason, in my view, is that investors are worried about the economy and rising loan defaults. Subprime borrowers, the reasoning goes, are the first to lose their jobs.

The market is usually pretty smart, but I am willing to bet that it's wrong in this case. For starters, Goeasy reported brisk EPS growth in a pretty poor economy. Output has already slowed a lot and plenty of jobs have been destroyed. Yet the loan book at Easyfinancial keeps performing and growing.

It's worth noting that the relatively new Easyfinancial division was profitable in both 2008 and 2009, and in fact operating income was almost six times higher in 2009 than 2008. This is a resilient loan book, and management appears to be disciplined on loan underwriting. In speaking with management, I think they are even better at judging credit worthiness and assessing risks today.

Story continues below advertisement

This is good news because there is tremendous growth in demand for credit. The truth is that the middle class, especially the lower middle class, needs access to credit more than ever. Wages are stagnant, but the desire to keep up with the Joneses is not. Meanwhile, taxes of one type or another consume more and more of our paycheques. This isn't going to change.

So it's not surprising that Goeasy believes the loan book can reach $500-million by 2018. It's currently a little less than half that, and producing interest income at an annualized rate of $100-million a year. To double the loan book is to double that income (not to mention all the other revenues the company earns, such as insurance, etc.).

But remember that in financial firms costs are typically highly fixed, so while revenue may double, costs will not. Therefore, earnings will grow very rapidly, and given that there are only 13 million shares outstanding, EPS could explode, and dividends along with them once the company decides to increase them (the current yield is about 2 per cent.)

This does not do justice to other growth opportunities. Goeasy has built a solid platform on which it is easy to bolt on other revenue streams without adding a lot of cost. The company has just started to do this, but I expect this kind of expansion into other products to increase. Analyst targets are in the $30 range, and I think that is achievable. Even if the multiple does not rise because of fears of the economic cycle, the stock should do well. If management silences its doubters with strong earnings and dividend growth, the multiple could move higher, providing for a double-barrelled return for shareholders.

Fabrice Taylor, CFA, publishes the President's Club investment letter, for which The Globe and Mail provides marketing services and receives compensation.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies