Is short target Goeasy actually a buy?

National Bank Financial analyst Jaeme Gloyn reiterated an “Outperform” rating and $265 price target on Goeasy (Goeasy Stock Quote, Chart, News, Analysts, Financials TSX:GSY) after a sharp selloff triggered by a critical short report, arguing the allegations are “without merit” and present investors with a buying opportunity.

Shares of the Mississauga-based subprime lender fell 9.9% on Sept. 22 following the release of a report by Florida-based Jehoshaphat Research, which disclosed it had taken a short position. The firm accused Goeasy of manipulating its reporting to understate rising delinquencies and charge-offs. It alleged the company had used a series of “aggressive accounting policies” to delay recognizing losses, creating what it called a $300-million “snowball” of defaults that would soon hit earnings.

Among its claims were that Goeasy altered its definition of charge-offs, reclassified around 8% of loans into a lower-risk category without justification, lowered allowances on Stage 3 loans, and saw a surge in unpaid interest receivables, which it described as a hidden indicator of borrower stress. It also flagged the departures of former CEO Jason Mullins and CFO Hal Khouri as further evidence of internal strain.

As reported by the Globe and Mail, Gloyn countered that the trends cited by Jehoshaphat can be explained by the rapid expansion of Goeasy’s secured auto loan business, which has grown from about $40-million in 2021 to more than $1-billion today.

He noted auto loans are larger, secured by vehicles, and typically charge off at 180 days past due rather than 90, which naturally increases the volume of interest receivable outstanding. Because they are backed by collateral, he added, the loss given default is lower, supporting a reduced allowance rate.

The risk reclassification, meanwhile, is consistent with enhanced collection capabilities introduced in 2024, which he said improved the probability of recovery and justified the lower risk categorization.

“The evidence presented by JR is explained by recent growth of GSY’s secured lending platform,” Gloyn said. “We believe management is aware of the potential volatility that comes with rapid growth of a lending vertical such as auto lending and is actively investing in collections and underwriting. That said, this does not imply that GSY is involved in any accounting games or excessive ‘kick the can’ activity.”

He concluded the selloff following the report and the company’s subsequent analyst call refuting the allegations created an entry point for long-term investors.

Goeasy itself issued a statement on Sept. 24 “categorically” denying the short-seller’s conclusions, noting Jehoshaphat stands to benefit financially from a decline in the share price. It emphasized its history of profitable growth, disciplined risk management, and transparent reporting consistent with IFRS. The company pointed to a provision of more than $400-million already set aside for loan losses, $600-million in net principal repayments received in the first half of the year, and $810-million in revenue as evidence of portfolio health.

“For decades, goeasy has delivered profitable growth, exercised disciplined risk management, and provided transparent financial reporting,” the company said. “We stand firmly behind our results, which reflect the strength and quality of our business.”

The stock remains widely supported on the Street, with eight of nine analysts covering the name rating it a “Buy.” The average target price is $239.22.

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