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Take a pass on goeasy, this portfolio manager says

Canadian fintech company goeasy (goeasy Stock Quote, Charts, News, Analysts, Financials TSX:GSY) has had a spectacular run over the past 12 months but the stock may have run a bit too hot. Investment manager Jason Del Vicario says there may be better options in the leasing and lending space that could yield higher returns. 

“goeasy is a company that we used to own. We got stopped out with them in March 2020, and we’ve since abandoned our stop loss discipline for a number of reasons,” said Del Vicario of Hillside Wealth Management, speaking on BNN Bloomberg on Wednesday. 

Mississauga-headquartered goeasy, an alternative lending company with brands easyhome, easyfinancial and LendCare, has been an investor’s dream for a while now. The stock basically doubled in 2019 and then returned a more modest 39 per cent in 2020. This year, GSY has gone from $96 as of Jan 1 to now $202 and counting, with the fintech and alternative lending space seemingly a hot commodity of late.

Last month saw payments company Square announce a huge $29 billion bet on Australian buy now pay later platform Afterpay, looking to the merger as a way to tap into the fast-growing BNPY space which saw plenty of uptake with younger e-commerce consumers during the pandemic, where the allure of buying their goods online without the need of a credit card was a big draw.

This week, Mastercard announced a new BNPY offering, Mastercard Installments, which will allow users to pay off purchases in chunks, with the credit card company saying it aims to give consumers more choice and greater flexibility on payments.

“Mastercard Installments has been built on our guiding principles to protect consumers and enable choice without sacrificing trust and security. It is a digital-focused way to pay today and tomorrow, delivered through consumer’s most trusted relationships with their banks and other lenders, at merchants of their choice,” said Mastercard chief product officer Craig Vosburg in a Tuesday press release.

And goeasy has definitely seen an uptick in usage of its platforms, with the company reporting in its second quarter 2021 that its loan portfolio was up 58 per cent year-over-year for the quarter, hitting $1.80 billion. goeasy reported a jump in demand from its direct-to-consumer lending channels along with strong performance from its credit and payments businesses. A full 65 per cent of its net loan advances for the quarter were issued to new customers, an increase from 49 per cent a year earlier.

“As we have now entered a period of accelerated growth, revenues lifted 34 per cent, while adjusted diluted earnings per share rose 38 per cent,” said goeasy president and CEO Jason Mullins in an August 5 press release.

“To support our future growth, we were also pleased to announce a $400 million increase to our securitization facility, supplemented by a material pricing reduction to a variable coupon rate of approximately 2.3 per cent,” Mullins said.

For the Q2, goeasy’s revenue came in at $202 million while adjusted quarterly net income was up 50 per cent to $43.7 million. With the quarterly report, goeasy gave a new three-year forecast for 2021 through 2023, calling for revenue growth of between 24 and 27 per cent for 2021, down to between 17 and 20 per cent for 2022 and between 12 and 15 per cent for 2023.

“With the economic recovery underway, the launch of our new auto loan product and the rapid expansion of our point-of-sale platform, we expect the growth of our portfolio to accelerate as we capture a larger share of the $200 billion non-prime consumer credit market,” said Mullins. 

“Our updated three-year forecast reflects growing our consumer loan book to nearly $3 billion by the end of 2023, while gradually reducing the cost of borrowing for our consumers, improving the underlying credit performance and expanding our margins through operating leverage. We remain focused on our goal of becoming the largest and best-performing non-prime consumer lender in Canada, while continuing to deliver market leading returns for our shareholders,” he said.

With all the good news around goeasy, Del Vicario says he is nonetheless unswayed, pointing instead to US-based auto dealer financial services company Credit Acceptance (Credit Acceptance Stock Quote, Charts, News, Analysts, Financials NASDAQ:CACC) as his choice.

“goeasy is an excellent company,” Del Vicario said. “They’re well run. They operate in the subprime lending space and they have consistently high returns on invested capital, so this is a type of company that we’d like to own.”

“At this time, however, we feel that Credit Acceptance offers better value in a very similar space, and it’s one of our larger positions at this time,” he said.

With a market cap of $9.2 billion compared to goeasy’s $3.3 billion, Credit Acceptance has also been a high-flyer this year where the stock is currently up about 70 per cent.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.

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