Is Goeasy’s Growth Sustainable? | The Motley Fool Canada

restless (TSX:GSY) is a major player in the Canadian financial market. Since 1990, it has provided non-prime lending solutions to Canadians who may otherwise have difficulty accessing traditional forms of credit.

As the company continues to expand its services and reach, an important question arises: Is goeasy’s growth sustainable? Let’s look at the factors contributing to its expansion and assess whether its trajectory is likely to continue.

Diverse customer base and target market

goeasy’s customer base is broad and diverse, spanning industries including manufacturing, retail, healthcare, technology and public services. This broad clientele reflects the company’s strategic focus on Canadians with non-prime credit who need alternative credit options. Its target market is more than 9.3 million Canadians, an impressive number that underscores a significant market opportunity.

In its 2023 annual report, the company defines the “typical customer” as a 43-year-old person supporting an average of 1.9 dependents and with an annual income of $60,000. Such customers tend to have stable employment histories and long-term residence, suggesting they are not at high risk of defaulting on their loans.

In addition, nonprime consumers have 53% less total consumer debt than their prime counterparts, largely due to lower homeownership rates. This demographic detail suggests a more manageable risk profile and the potential for more stable growth for goeasy.

Expansion through product diversification and acquisitions

Over the years, goeasy has strategically diversified its product offerings, which has been key to driving revenue and profitability growth. A notable example is the acquisition of LendCare in April 2021. LendCare is a leading provider of point-of-sale financing and operates through a network of over 6,200 merchants. This acquisition enabled goeasy to expand its financing options for a range of products, from motorsports and healthcare to everyday retail purchases.

In addition to acquisitions, goeasy has expanded its product offering to include a variety of lending solutions, such as household goods leasing, unsecured personal loans, home equity loans, auto financing, and everyday purchase financing. This diversification not only meets a broader range of customer needs, but also helps stabilize revenue streams by reducing reliance on a single product type.

Multi-channel distribution and international expansion potential

A key part of goeasy’s growth strategy is its omnichannel business model. The company delivers its products and services through a comprehensive network that includes over 400 physical locations, an extensive digital platform (including a mobile app), and a broad network of resellers and dealers spanning over 9,500 partners. This omnichannel approach ensures that goeasy can reach customers through their preferred method of interaction, increasing convenience and accessibility.

Looking ahead, Goeasy is eyeing international markets as potential growth avenues. The United States and the United Kingdom, with their large non-prime mortgage populations (over 100 million and 12 million, respectively), represent significant expansion opportunities. While internationalization carries inherent risks, the significant market size in these regions means promising growth potential if Goeasy can successfully adapt its business model to new environments.

Strong financial results

In terms of financial performance, goeasy has shown remarkable growth. Over the past five years, dividend stocks have delivered total returns at a compound annual growth rate (CAGR) of around 30% and 25% over the past decade. This impressive performance is complemented by a solid dividend growth rate of 27% over 10 years, positioning goeasy as a leading Canadian Dividend Aristocrat.

Trading at $181 per share at the time of writing, the growth stock offers a dividend yield of almost 2.6%. Analysts believe the stock is trading at a discount of around 20%, which could present an attractive opportunity for investors. The combination of strong historical returns, growing dividends, and favorable valuation contribute to a positive outlook for Goeasy’s future growth.

Conclusions for the stupid investor

goeasy’s growth appears to be supported by a solid foundation in the form of a diversified product offering, strategic acquisitions, an effective multi-channel strategy and promising international expansion prospects.

Combined with strong financial performance, these factors suggest that goeasy’s growth trajectory is sustainable over the medium term. However, as with any investment, continued vigilance and the ability to adapt to market changes will be key to maintaining this positive momentum.