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goeasy: Their Competitors Are Leaving The Market

Apr. 13, 2018 5:30 AM ETgoeasy Ltd. (EHMEF), GSY:CA7 Comments


  • goeasy has a strong market runway as payday loan lenders are regulated out of the market.
  • Minimum wage changes improve their clients' ability to pay back their loans.
  • Trading cheaply based on quickly growing earnings.

goeasy (OTCPK:EHMEF) [TSX:GSY] operates in two business segments – leasing and financial. These are related businesses, as they operate out of many of the same locations and cater to the same customers. The leasing business is the legacy operation, and requires more space. The company sells and leases furniture, appliances, and electronics. Leasing with weekly or monthly payments is their primary business, and has much higher margins than a standard furniture store. Of course, because the company is leasing goods, they inevitably get a material portion of them back. That means that even though a standard white coil top range and stove (estimated retail value ~$500) would cost a total of $2808 through EasyHome, they are fairly likely to get it back before the end of the three year term. Effectively, this business is a mix of hard goods retailer and subprime lender.

Their newer and faster growing business is EasyFinancial, which skips the retail portion of the business and simply makes subprime loans. This expands the potential size of their market, because it allows them to provide funds for subprime clients for any reason, not just because they want a new couch or Xbox. These loans have terms from 9 months to 5 years with sizes of $500 to $15,000 available. There are a number of advantages to both the consumer and the company of this model as compared to the payday loans that are their major competitor.

The first is that it reduces the handling costs of making the loan. Payday loans are for short terms with high fees, which are necessary to cover the fact that interest (even at very high rates) is a nominal amount of money over short timeframes. These very high origination fees are necessary to cover the high amount of customer interaction/cost per dollar of loan value. Because goeasy

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in EHMEF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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