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GoEasy (GSY)

8K views 66 replies 12 participants last post by  james4beach 
#1 ·
Banks ran up a lot lately, so I was looking to buy something for more potential of rallying, within financials.
I do like HomeCapital and Genworth valuations and late come-back, after the shorts were proven wrong once again, but I prefer even more 'stealthy' stocks,
those that get little attention on BNN.

GoEasy
- 2.6% dividend
- PE = 10
- Last quarter was great
- 15% away from its 52-week high

I'm buying a half position at 19.15.
 
#2 ·
I've held the stock for almost 3 years. The company has been doing great, but the stock has been stalled for 2 years. The more the company earns, the more the market discounts the valuation so the price never moves up much.

I think it's stuck in this same negativity surrounding financials in Canada with the oil bust, but it seems the big banks are finally breaking out of it. It hard to imagine if the market keeps rallying that eventually it won't filter down to GoEasy. The stock should be a lot higher. My target is mid-20s.
 
#3 ·
Nobody talking about this stock?

Multiples are some of the cheapest on the TSX, other fundamentals are good (operating margin, return on equity, etc.).

Earnings are growing fast. The stock itself is growing very fast. It's even paying some growing dividends for those who like dividends.

I feel pretty confident about the growth of this one. But I don't like when I'm confident, so I want to be challenged by other opinions.

I know that many people don't like their business model.

Any opinion?
 
#4 ·
I like it. Revenue growth in the 18 - 20 % range. EPS growth around 26%. ROE 20 %.
Ticks a lot of the right boxes.
Niche market. Not aware of any serious competition. Previous company in this market was Household Finance but they disappeared - Apparently they were bought out then the market was abandoned but not sure about that.
 
#5 ·
I've owned GSY several times - recently this year made a nice 100%+ gain on it. It sells off at the first sign of financial stress and of course has an extremely resilient business model. Would buy again on any big pullback, but I typically wait for 40-50% corrections. It has so much free cash flow that once the selling stops, the buybacks take over.
 
#6 ·
Definitely a volatile sucker. In the 2018 rate hike scare, the drawdown was 44% versus just 16% for the market (nearly 3X the drop)

In the 2020 crash, drawdown was 74% versus 38% for the market (about 2X the drop)

It's performing much more strongly than the broad market. So it's high beta, but has a good risk-adjusted return nevertheless. Market cap is only $1 billion so it's a small cap, expected to be very volatile.

If picking small cap stocks is your thing, could be a good one!
 
#8 ·
I love the business model, however I have several concerns, particularly with their lease to own service.

1. They prey on poor credit individuals. What happens when they can't pay
- This is hedged by the fact that their prices are so insane, they break even almost immediately.
2. Their pricing is predatory and IMO would violate usury laws, one good consumer protection complaint could destroy this business.
Playstation 4 Pro
@$25/wk for 104 weeks = $2700 over 2 years
Retail
$499.99. << at retail!!!

The rip off level is IMO so bad that
1. To even suggest pricing this bad makes me question their ethics.
2. They're are at huge risk of consumer default
3. They're at huge risk of government action.

I don't do business with unethical people, if they'll screw other people they'll screw you.
 
#9 ·
Seems odd that you said you love their business model and immediately listed all the reasons why most people say they don't like their business model. :p

I'd question the ethics, true. If the government takes action to decrease the legal maximum interest on a loan, they would be hit bad, true. Or maybe they are already at the limit of legal and that could be a risk, true. About defaults, I think their business model is already running smoothly with that risk.
 
#11 ·
I love the business model, but I think that their rates criminal.
They get the full retain price in less than 6 months, then continue for 18 more months.

I think waterheater companies have the same business model, but the rates aren't quite as bad, and they don't prey on the vulnerable.


I think loans, product financing, futures contracts etc are all perfectly legitimate and reasonable business transactions.
I actually think commodity trading and futures markets are WONDERFUL.

That being said, I have little tolerance that will use these tools to exploit people.
 
#10 · (Edited)
I think there's a sure thing though. As their business grows, it'll draw more attention and their business will be perceived negatively which will hurt them. They won't be allowed to continue growing at 40% CAGR and outpace banks. (I believe it would take at least two decades though, even at 40% CAGR)
 
#19 ·
GSY escapes the regulation oversight for the most part because they are not as far down the chain as the payday loan stores, which also operate legally. Their rates can certainly be high, but this company has a very significant and very visible presence in every province in Canada including Quebec now, they are not hiding in the shadows. You don't have to like it, but I would agree that they do offer credit to people who couldn't get it, and they also do still have to turn down a lot of people who apply.

Let's also point out they write off 10-15% of all their loans. The big banks have loan losses that are a fraction of 1%. So no, other than giving people money outright, there are no other options other than the Payday Loan companies which will charge a lot more. GSY has found a way to make reasonable operating margins (less than the big banks, I might also add) in the middle ground of credit profiles and provide loans to tens of thousands who would otherwise not be able to find it.
 
#28 ·
Bad press for GoEasy.

More than 20 years ago I was looking to buy a rental. I was authorized for the max I could borrow from the bank but still needed more money. After cash advances from credit cards, I still needed more. Back in those days the super high interest rate firm was Household Finance. I borrowed from them at rates similar to those cited above and the deal went through. They were the only ones that would touch me. I ended up doing well on the rental and paid all my bills on time. I don't see anything amiss with adjusting interest rates according the the risk. I was a big risk and they took the risk; I compensated them by paying their rates. If they would have had nanny state do-gooders back then blocking the deal to save me from myself, the deal would not have gone through. I might then be poor and the do - gooders might then be wanting the government to pay for my rent and food. Why would anyone want a nanny state interfering with your own judgement and financial deals? They don't care about you, they only care about looking good to do-gooders. The nanny state do-gooders will never be satisficed. Even after they run every aspect of your life they will still want more power over you.
 
#29 ·
Yes I'm still holding GSY.TO for the long term and I'm pretty sure it'll be an amazing investment.

I'm just wondering if such bad press can affect them if it gets on a political momentum or if such article pops once in a while and is forgotten as fast as it appeared.
 
#30 ·
A senator has drawn up a bill to limit interest rates.

Easy Financial charges 49.9% interest. If the bill passes, these types of lenders would be impacted.

I would rather see the credit unions issuing small loans guaranteed by the government at a much lower rate.

Provide some competition for the alternative lenders and they will go away on their own.
 
#31 ·
To my recollection all these outfits have had press like this previously.

Nothing wrong with the press noising about and seeing what's what. I like their investigations of used car dealers. repair shops and what not. Where would we be without a "free" press.

All the lenders, even the big banks. charge rates according to risk. Nothing amiss with that principle. That's part of what a credit rating is about. If the banks see too big a risk, why just say no. They want high quality low risk customers. That leaves an opening for higher risk lenders. My understanding is Go Easy helps people with no credit rating or poor credit rating get a higher rating thereby earning a lower interest rate. Besides loans, they are offering experience and learning which, if effective, can only strengthen the financial fabric of the country.

The do - gooders offer nothing but preventing the cat from sitting on the hot stove. No learning, no experience, just micromanaging.
 
#32 ·
The alternative lenders would have a stronger argument if they were more transparent on their interest rates and lending practices.

Requiring someone to to sign up for expensive "disability" insurance that is full of disqualifications, isn't teaching anything.

Advertising low interest rates that they never give to anyone is misleading. Telling people they can re-apply at a lower rate after a year is a falsehood.

In any event, I wouldn't want to see the alternative lenders disappear without a replacement in place.

A government secured loan from a COOP or charitable organization could do a better job of "teaching" while helping the clients.

Governments have exclusive powers of collection, so the default risk is largely mitigated and they can charge a lower rate of interest.
 
#33 ·
If this is true and you can find it out, why can't clients of these lenders find it out? You imply that a nanny state is required. When you get a nanny state you end up with a nation of toddlers who always look to nanny to fix things. What happens when the head nanny turns out to be a psychopath? Then you have a nation of toddler sycophant's who blindly follow Head Nanny. I prefer people who are educated, either self educated or otherwise, who can stand on their own two feet and think for themselves.
 
#35 ·
Marketplace did an episode on Go Easy, Fairstone, Cash Money and Money Mart. All are charging interest rates of over 40% on their loans. Canada allows a max of 60%.

Definitely some very shady and high pressure sales tactics. Sky high insurance rates, interest on insurance, not allowed to take a copy of the contract until you sign. All of this clearly caught on camera. Definitely predatory.

I understand that folks should understand what they're signing, etc, but the truth is a lot of folks simply don't have the capacity. I also understand the high risk, etc the lender is takibg. The government needs to step in and better regulate this industry.
 
#38 ·
The point people miss about these alternative lenders is that without them these people would have zero options of borrowing money. Money is a necessity of life. If you take away a necessity of life, from any human, you will find their reactions to it will carry more hardship for them and society, then what these lenders are doing. That is why the government allows it.

It is a competitive industry and it is a service that is as necessary as food.
 
#39 ·
The point people miss about these alternative lenders is that without them these people would have zero options of borrowing money. Money is a necessity of life. If you take away a necessity of life, from any human, you will find their reactions to it will carry more hardship for them and society, then what these lenders are doing. That is why the government allows it.

It is a competitive industry and it is a service that is as necessary as food.
But the problem is that they'll use these guys, and become even too risky for them, then they're still have needs.

We have to deal with the actual reason how people get themselves into such a situation.
Once they're too far for these, they'll go to even less ethical lenders.
 
#43 ·
GSY reports incredible results, increases dividend by 47% (it's been constantly increasing their dividend by such huge percentages), it's currently rallying and its short ratio is 9.23. What's not to like?
 
#45 ·
My initial purchase of GSY during the crash just hit 4X (+300%).
 
#46 · (Edited)
You might want to keep an eye on the progress of Bill C-274, which would reduce the maximum interest rate to 20% over the BOC lending rate.

Adjusting the usury laws are also mentioned in the 2021 Federal budget.

Changes would not likely affect credit cards or payday loans (exemption for the Provinces to decide) but would impact a number of "alternative" lenders.

Rates of lending among the companies typically varies in a range of 39% to 49% per year.

Personally, I don't think it is a good idea to cut of lending sources for people who don't qualify for a bank loan, without being replaced with some kind of other method of financing.

Some companies do report to credit agencies which does give people a chance to improve their credit rating, and that is a good thing.

But it appears, the consumer groups have a different opinion.
 
#47 ·
Congratulations on jumping in when you did.

It reminds me of years ago I heard about a company called Carfinco that lent money at 49% to people to buy used cars. They put a GPS on it so they could track it and shut down the engine if the payments weren't made.

At the time, I had about $70,000 invested in penny stock biopharma companies and was immersed in that on a daily basis. It was pure speculation and gambling........and my money would increase $4000 one week and down $3000 the next.

I thought at the time I should sell all those penny stocks and put it all into Carfinco, at...........25 cents a share. But, as per usual I got distracted and forgot about it.

I finally sold out all my biopharma shares on an upswing.........and was thrilled to get out and make a few dollars.

Then one day I saw a headline on the business news........Carfinco bought by a big lender and paid I think it was $9 something a share.

Cripes....I would have had 280,000 shares but that is the story of my life...........a day late and a dollar short........LOL.
 
#49 ·
I think the Liberals are acting slow on the changes because they recognize the need to get something else in place for people who need affordable small loans.

Giving access to loans doesn't necessarily have to cost 49% a year in interest, or in the case of payday loans.....600% interest per annum.

Maybe these companies could borrow directly from the BOC at low rates and then charge a more reasonable rate of interest.

If the government is the final guarantor of the loan......they have the power to seize anything, including pensions and government benefits.
 
#52 ·
The banks are poorly equipped to handle the high risk markets.

Great credit customers can today easily apply and get loans with very little (if any) human interaction from the bank side, all the transactions are handled by computer.

Payday loans are a lot more risk, and a lot more work.

If these restrictions are bad, the borrowers will just go to unregulated financial services, which is likely not good for them.
 
#53 ·
GoEasy is a subprime lender, and their success closely mirrors the American credit boom (and mania) in the early 2000s.

We have a runaway housing bubble, record low interest rates, tremendously easy credit (for homes, cars, and consumer goods) and companies like GoEasy are well positioned for the current environment. For example, GoEasy finances home furnishings and appliances, so as people buy homes they can't afford, and fill it with junk they can't afford, GoEasy is there.

I think they are incredibly exposed to the housing and credit bubble (the two are closely related) so they should do fine as long as the credit bubble continues. But they are also very exposed, if the "fun" ends.
 
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