CIBC Notes Event: Since the market bottom in late October, goeasy (GSY-TSX) shares have gone nearly parabolic. The line chart on the left-hand side of Exhibit 2 illustrates how goeasy and its closest competitor OneMain (OMF-NYSE) have experienced an extraordinary run.
Our Take: We would attribute goeasy’s recent share price performance to market or macro-related factors. As the expectation of a higher-for-longer interest rate environment began to dissolve over the past few weeks, the market tone swung dramatically and investors adopted a risk-on posture. We believe that the risk-on tone of the market contributed to the dramatic escalation of goeasy’s market value over the past six weeks. Declining interest rates are also an earnings tailwind given that lending rates are fixed but funding costs float. All else equal, a declining rate environment translates to an expansion of risk-adjusted margins on new loan originations. It also shouldn’t be overlooked that goeasy has been delivering a series of impressive results, characterized by strong loan growth and stable
credit performance, but has failed to receive recognition for this track record in the public markets. The bottom line, in our view, is that there are a lot of reasons to be optimistic about goeasy if market yields continue to trend down and the market rally proves durable as we enter 2024. Despite the exceptional run, the stock still trades below its long-term average P/E.