Stock pick: Easyhome Ltd. is an attractively valued “cash flow machine”

1 Premium content image

12-month trailing stock chart for Easyhome Ltd. (EH.TO)If you’re searching for a stock to add to your RRSP portfolio—the deadline is only a month away—consider Easyhome Ltd. (TSX: EH), a small-cap financial company-based in Mississauga.

It’s a little riskier than holding a big bank in your retirement account, but if you don’t mind owning a $205 million market-cap business then there could be some good upside ahead, says Bruce Campbell, president and portfolio manager at Kelowna-based StoneCastle Investment Management.

Easyhome leases furniture, appliances and electronics to Canadians who’d rather pay a monthly fee than an upfront cost. It sells its products directly to consumer, in its 213 stores and online. Campbell says that the company, which used to sell sub-prime mortgages, has really ramped up its business over the last two years. “It’s growing earnings by growing its loan book,” he says.

The stock has climbed by 50% over the last 12 months—partly due to the 41% year-over-year earnings per share growth it saw in Q3 2013—but Campbell thinks it still has room to run. The company is talking to Sears about becoming its financing arm, he says, which would significantly increase its earnings. It also pays a 2.2% dividend, which he’s certain will grow over time.

Like a lot of Canadian financial companies, it’s also attractively valued, trading at around 13 times earnings. Spencer Churchill, an analyst with Paradigm Capital, has a buy rating on the company and an $18.50 12-month-price target; it’s currently trading at $15.50.

He too thinks this company could give a boost to portfolios this year. “The company has found a larger underserved portion of Canadian households that do not qualify for traditional bank credit but do not wish to pay the exorbitant interest rates that payday loan operators charge,” he wrote in a November report. “(This) leasing business is a cash flow machine.”

One comment on “Stock pick: Easyhome Ltd. is an attractively valued “cash flow machine”

  1. Looking at the 2013 financials, this name is an accident waiting to happen. Lease revenues decreased yr/yr and the company made up the shortfall by charging more on the loan portfolio. The loan portfolio grew by 50%. Whereas previously, they dealt in subprime mortgages and had recourse to real estate in the event the mortgages soured, now they deal in subprime consumer loans for novelty items and gadgetry and have recourse to…? Run from this name. Run as far as you possibly can.

    Reply

Leave a comment

Your email address will not be published. Required fields are marked *