Here's Why I Think goeasy (TSE:GSY) Is An Interesting Stock

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like goeasy (TSE:GSY). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for goeasy

goeasy's Improving Profits

Over the last three years, goeasy has grown earnings per share (EPS) like young bamboo after rain; fast, and from a low base. So I don't think the percent growth rate is particularly meaningful. As a result, I'll zoom in on growth over the last year, instead. Like the last firework on New Year's Eve accelerating into the sky, goeasy's EPS shot from CA$5.55 to CA$13.89, over the last year. You don't see 150% year-on-year growth like that, very often.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. I note that goeasy's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. goeasy maintained stable EBIT margins over the last year, all while growing revenue 21% to CA$507m. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Fortunately, we've got access to analyst forecasts of goeasy's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are goeasy Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own goeasy shares worth a considerable sum. Indeed, they have a glittering mountain of wealth invested in it, currently valued at CA$705m. Coming in at 22% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations between CA$2.5b and CA$8.1b, like goeasy, the median CEO pay is around CA$3.8m.

goeasy offered total compensation worth CA$2.0m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add goeasy To Your Watchlist?

goeasy's earnings have taken off like any random crypto-currency did, back in 2017. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The strong EPS improvement suggests the businesses is humming along. Big growth can make big winners, so I do think goeasy is worth considering carefully. Even so, be aware that goeasy is showing 5 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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