Alternative Lending And Digital Trends Will Ignite Growth

Key Takeaways

• New product launches and a digital-led strategy are driving accelerated market share gains, attracting higher-quality borrowers and fueling revenue growth beyond expectations.
  
• Strong organic funding and industry headwinds for competitors position goeasy for major acquisitions, market share growth, and margin expansion above peers.
  
• Regulatory tightening, shifting consumer preferences, mounting competition, and growing social scrutiny are challenging goeasy's revenue growth, profitability, and long-term sustainability.

Catalysts

Provides non-prime leasing and lending services under the easyhome, easyfinancial, and LendCare brands to consumers in Canada.

• While analyst consensus expects new products like the credit card and auto-title/refi loans to incrementally expand the customer base, the Q1 surge in applications and success in attracting higher-credit-quality non-prime borrowers suggest that these product launches could trigger an acceleration in market share beyond expectations, driving outsized revenue growth as a flight from traditional banks intensifies.
  
• Analysts broadly agree automotive financing expansion will drive growth, but the pace of dealership onboarding (now exceeding 4,000), record auto originations, and ongoing consolidation in the dealer market indicate goeasy could emerge as the undisputed non-prime auto lender in Canada, materially outpacing projected origination and fee income growth.
  
• With a digital-led acquisition strategy and ongoing investments in technology and collections infrastructure, goeasy is positioned to achieve customer acquisition costs and operating leverage materially better than peers, potentially leading to sustained margin expansion even as the business scales rapidly.
  
• Robust organic cash generation and strengthened capital markets access enable goeasy to pursue large-scale acquisitions at a time when many competitors are facing funding constraints, setting the stage for transformative market share gains and step-function increases in both revenue and long-term earnings power.
  
• Demographic drivers, including population growth and increased immigration to Canada, are accelerating demand for non-prime credit and alternative lending, creating a powerful multi-year volume tailwind that is likely still underappreciated in current forecasts, supporting top-line growth well above the industry average.

goeasy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on goeasy compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming goeasy's revenue will grow by 45.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 32.5% today to 19.7% in 3 years time.
• The bullish analysts expect earnings to reach CA$488.1 million (and earnings per share of CA$27.74) by about July 2028, up from CA$263.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.2x on those 2028 earnings, down from 10.7x today. This future PE is lower than the current PE for the CA Consumer Finance industry at 14.5x.
• Analysts expect the number of shares outstanding to decline by 4.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.08%, as per the Simply Wall St company report.

goeasy Future Earnings Per Share Growth

Risks

• Stricter regulations, such as the new interest rate cap at 35 percent, have already compressed goeasy's total portfolio yield, with yields falling to the lower end of forecasts and management indicating it will take additional quarters to optimize under this new regulatory regime, lowering overall revenue and net margins.
  
• The shift in consumer behavior toward financial literacy, alternative fintech products, and rising access to digital-first platforms may erode demand for goeasy's high-interest, non-prime lending, especially as legacy operators face pressure to increase technology and collections investments, affecting long-term revenue growth and operating expense ratios.
  
• Persistent macroeconomic volatility and rising delinquencies are leading to higher provisioning and credit losses, as evidenced by the increased loss provision rate to 7.86 percent and a negative impact on quarterly earnings per share, putting continued pressure on net earnings and return on equity.
  
• The increasing competitiveness from both fintechs and large banks moving into the non-prime lending space could intensify margin and market share pressures for goeasy, particularly as competitors leverage open banking and AI to underwrite loans at lower risk and cost, reducing goeasy's long-term revenue and profitability.
  
• Growing social scrutiny of subprime lending and environmental, social, and governance (ESG) considerations could raise funding costs and limit access to capital for goeasy, especially as the company depends on capital markets for debt issuance to fuel loan growth, which may have adverse effects on the cost of borrowing and sustainable earnings expansion.

Valuation

• The assumed bullish price target for goeasy is CA$282.5, which represents two standard deviations above the consensus price target of CA$213.11. This valuation is based on what can be assumed as the expectations of goeasy's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$300.0, and the most bearish reporting a price target of just CA$171.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CA$2.5 billion, earnings will come to CA$488.1 million, and it would be trading on a PE ratio of 10.2x, assuming you use a discount rate of 8.1%.
• Given the current share price of CA$176.0, the bullish analyst price target of CA$282.5 is 37.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.