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On today’s TSX Breakouts report, there are 35 stocks on the positive breakouts list (stocks with positive price momentum), and 23 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that appeared on the positive breakouts list late last month when its share price closed at an all-time high of $60 on Sept. 26. Last quarter, the company reported record revenue, record earnings, and record ROE (return on equity).

The share price has rallied 58 per cent year-to-date and analysts believe the share price will continue to rise. The average 12-month target price is over $70, implying a potential price return of 25 per cent (27 per cent total return including the dividend).

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Record revenue and double-digit top line growth are expected to continue in the upcoming years. Management’s ROE targets are 24 per cent or higher in 2019, and 26 per cent or more in 2020 and 2021. Meanwhile, the stock is trading at a forward price-to-earnings multiple of just over 8 times. The stock has a unanimous buy recommendation from the seven analysts actively covering the company.

The security highlighted below is goeasy Ltd. (GSY-T).

Over the past seven trading sessions, the share price has retreated 6 per cent. Given the current market volatility, further downside could represent a buying opportunity for investors with a high risk tolerance. The share price can be quite volatile. For instance, during the market meltdown in the fourth-quarter of 2018, the share price declined 43 per cent, closing at $31.12 on Dec. 24, 2018, down from $54.13 on Sept. 26, 2018.

A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Ontario-based goeasy operates two core business segments: easyhome and easyfinancial. Easyhome allows customers to purchase furniture, appliances and electronics on a lease-to-own basis, through weekly or monthly leasing agreements. Easyfinancial allows individuals to borrow up to $15,000, repaying the loans in up to 60 months for unsecured loans (91 per cent of its loan originations are unsecured loans). In the second quarter, there were 164 easyhome stores and 247 easyfinancial locations. In 2018, easyhome revenue totaled $138-million (27 per cent of total revenue), while easyfinancial delivered revenue of $368-million (73 per cent of total revenue). Management main objective is to become the country’s leading non-prime consumer lender.

In terms of geographical breakdown of the company’s loan portfolio, as of June 30, the top regional exposures were as follows: 43.8 per cent of consumer loans originated in Ontario, Alberta represented 13.6 per cent, B.C. came in third place at 11.1 per cent, Québec and Nova Scotia each accounted for 5.7 per cent, and Saskatchewan was 5.3 per cent.

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On Sept. 4, the company announced a $34-million acquisition of PayBright, a provider of largely non-prime point-of-sale consumer financing that has ‘buy-now, pay-later’ plans with over 4,700 merchants.

After the market closed on Aug. 7, the company reported solid second-quarter financial results that lifted the share price by nearly 9 per cent the following trading day. Consolidated revenue came in at $148-million up 20 per cent year-over-year, and relatively in-line with the Street’s forecast of $147.5-million. Easyfinancial’s revenue was $113-million, up 27 per cent year-over-year. Total loan originations were $276-million, up 18 per cent year-over-year, bringing the loan portfolio up to $960-million (up 40 per cent year-over-year). Easyfinancial’s operating margin expanded to 41.4 per cent, up from 37.5 per cent reported last year. While easyhome’s operating margin was 16.1 per cent, up 1.2 per cent year-over-year. Easyhome’s same-store revenue grew by 3.8 per cent. The company reported earnings per share (EPS) of $1.26, surpassing the consensus estimate of $1.23. ROE was a record 25.2 per cent.

Looking ahead, management has provided the following guidance. Management targets growing its loan portfolio to between $1.1-billion and $1.2-billion in 2019, between $1.3-billion and $1.4-billion in 2020, and between $1.5-billion and $1.70-billion in 2021. Revenue growth is targeted to be between 20 per cent and 22 per cent in 2019, between 14 per cent and 16 per cent in 2020, and between 10 per cent and 12 per cent in 2021. ROE is forecast to be 24 per cent or higher in 2019, rising to 26 per cent or more in 2020 and 2021.

According to the second-quarter investor presentation, management and board members reportedly owned approximately 28 per cent of the shares outstanding, aligning their interests with shareholders’ interests.

The company is expected to release its third-quarter financial results in early November. The Street is anticipating the company to report revenue of $155-million and earnings per share of $1.42.

Returning capital to its shareholders

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The company pays its shareholders a quarterly dividend of 31 cents per share, or $1.24 per share yearly, equating to a current annualized dividend yield of 2.2 per cent.

In Feb., management announced a 38 per cent dividend hike, raising the quarterly dividend to its current level of 31 cents per share from 22.5 cents per share. The company has announced dividend increases annually since 2015.

The company has been active in its current share buyback program that extends to Nov. 2019. As of Aug. 31, the company had repurchased 840,304 shares at an average price per share of $40.97. During the second quarter, the company repurchased approximately 95,000 shares at a weighted average price of $44.90.

Analysts’ recommendations

This small-cap financial stock, with a market capitalization of $813-million, is actively covered by seven analysts on the Street, and all seven analysts have buy recommendations. Jeff Fenwick, an analyst at Cormark Securities, has a “top pick” recommendation.

The firms providing recent research coverage on the company are as follows in alphabetical order: Beacon Securities, BMO Nesbitt Burns, Cormark Securities, Desjardins Securities, National Bank Financial (Jaeme Gloyn initiated coverage in Aug. 2019), Raymond James and TD Securities.

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Revised recommendations

In August, Desjardins’ Gary Ho lifted his target price to $67 from $61. Jeff Fenwick at Cormark Securities bumped his target price to $70 from $64. Beacon Securities’ Doug Cooper raised his target price by $12 to $82 (the high on the Street).

Financial forecasts

The company has reported positive earnings growth over the years. Reported EPS was $1.42 in 2014, $1.69 in 2015, $2.23 in 2016, $2.56 in 2017 and $3.56 in 2018.

According to Bloomberg, the consensus earnings per share estimate is $5.37 for 2019 and anticipated to increase 25 per cent to $6.74 in 2020.

Earnings forecasts have been rising. For instance, three months ago, the Street was anticipating earnings per share would come in at $5.35 in 2019 and $6.59 in 2020.

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Valuation

According to Bloomberg, the stock is trading at a price-to-earnings (P/E) multiple of 8.4 times the 2020 consensus estimate, which is slightly above its historical three-year average P/E multiple of 7.7 times but below its peak multiple of over 9.5 times during this time period. In Dec. 2018, when the stock market plunged, the stock briefly traded at a forward P/E multiple that was just under 6 times.

Analysts’ expectations vary widely. Target prices range from a low of $64 to a high of $82. The average one-year price target is $70.57, suggesting the stock price may appreciate 25 per cent over the next 12 months. Individual target prices are as follows in numerical order: $64 (the low on the Street is Raymond James’ Brenna Phelan), $65, $67, $70, $72, $74 and $82 (the high is from Beacon Securities’ Doug Cooper).

Insider transaction activity

Quarter-to-date, there has not been any transaction activity in the public markets reported by insiders.

During the second quarter, two insiders traded shares in the public market.

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On Aug. 26, Steven Poole, senior vice-president – operations and merchandising, acquired 1,500 shares at an average price per share of approximately $53.58 for an account in which he has indirect ownership. The cost of this investment exceeded $80,000.

Between Aug. 9 and Aug. 15, chief risk officer Jason Appel purchased a total of 750 shares at an average cost per share of roughly $52.83 for two accounts. The cost of these purchases totaled over $39,000.

Chart watch

Year-to-date, the share price of this financial stock has rallied nearly 58 per cent. After rallying to an all-time closing high of $60 in late-Sept., the share price has retreated 6 per cent but on average to low volume.

The stock’s chart is positive with the share price remaining in an uptrend.

Looking at key resistance and support levels, there is an initial ceiling of resistance around $60, at its record closing high reached on Sept. 26, 2019. After that, the next level of resistance is around $65. Looking at the downside, the share price is approaching technical support around $55, which is close to its 50-day moving average (at $55.52). Failing that, there is strong technical support around $50, just above its 200-day moving average (at $48.52).

Liquidity can be low for this small-cap stock, which can increase the share price volatility. The three-month historical daily average trading volume is approximately 47,000 shares.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Positive BreakoutsOct. 7 close
AP-UN-TAllied Properties REIT $54.25
ACO-X-TAtco Ltd $49.32
AI-TAtrium Mortgage Investment Corp. $13.96
APR-UN-TAutomotive Properties REIT $11.28
BEI-UN-TBoardwalk Real Estate Investment Trust $45.59
BLX-TBoralex Inc $22.82
BRE-TBridgemarq Real Estate Services $15.05
BEP-UN-TBrookfield Renewable Energy Partners LP $55.91
CAR-UN-TCanadian Apartment Properties REIT $56.46
CPX-TCapital Power Corp $31.29
KBLT-TCobalt 27 Capital Corp. $4.27
CUF-UN-TCominar Real Estate Investment Trust $13.76
CSU-TConstellation Software Inc $1,336.81
CRR-UN-TCrombie Real Estate Investment Trust $16.21
CRT-UN-TCT Real Estate Investment Trust $15.25
DHX-TDHX Media Ltd $2.13
DIR-UN-TDream Industrial REIT $13.55
D-UN-TDream Office REIT $30.06
DRM-TDREAM Unlimited Corp $9.86
EQB-TEquitable Group Inc $104.93
FC-TFirm Capital Mortgage Investment Corp $14.07
FCR-TFirst Capital Realty Inc $22.55
FTS-TFortis Inc $56.78
GRT-UN-TGranite Real Estate Investment Trust $66.15
HR-UN-TH&R Real Estate Investment Trust $23.47
H-THydro One Ltd. $24.99
INE-TInnergex Renewable Energy Inc $16.09
IIP-UN-TInterRent REIT $16.41
ITX-TIntertain Group Ltd $12.00
PDL-TNorth American Palladium Ltd $19.75
NPI-TNorthland Power Inc $26.26
PLZ-UN-TPlaza Retail REIT $4.62
SMU-UN-TSummit Industrial Income REIT $13.31
TCS-TTECSYS Inc. $16.00
WSP-TWSP Global Inc $80.00
Negative breakouts
AFN-TAg Growth International Inc $39.39
ADW-A-TAndrew Peller Ltd $13.54
ATA-TATS Automation Tooling Systems Inc $17.40
AUP-TAurinia Pharmaceuticals Inc $6.57
ACB-TAurora Cannabis Inc. $5.41
BAD-TBadger Daylighting Ltd $38.77
TRST-TCannTrust Holdings Inc. $1.42
DII/B-TDorel Industries Inc $5.08
ERO-TEro Copper Corp. $18.13
FEC-TFrontera Energy Corp. $11.37
GMP-TGMP Capital Inc $2.34
GTE-TGran Tierra Energy Inc $1.46
HDI-THardwoods Distribution Inc $11.10
HARV-THarvest Health & Recreation Inc. $3.77
MTL-TMullen Group Ltd $8.00
OGI-TOrganigram Holdings Inc. $4.29
PXT-TParex Resources Inc $18.76
PEY-TPeyto Exploration & Development Corp $2.80
SMT-TSierra Metals Inc $1.44
SOY-TSunOpta Inc. $2.06
TGOD-TThe Green Organic Dutchman Holdings Ltd. $1.82
TMR-TTMAC Resources Inc. $4.27
TOU-TTourmaline Oil Corp $11.15

Source: Bloomberg

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