EQB:CC - Is EQB Inc's Growth Sustainable?

2023-09-21 10:30:00 ET

EQB ( TSX:EQB ) is quite possibly Canada’s fastest-growing listed bank. In its most recent quarter, its revenue increased 72%, a rate of growth that the Big Six banks couldn’t come close to. Although Canada’s best large banks have grown somewhat over the years, they are not true growth stocks like EQB is.

In light of this, it’s not surprising that EQB has outperformed the average TSX bank stock over the last five years. In that period, the stock has risen 114%, which is a larger capital gain than any of the big banks in the same period. Additionally, EQB’s management has raised the stock’s dividend by 22% compound annual growth rate (CAGR) or 170% over those five years.

So, EQB stock has given investors a lot to celebrate in recent years. The question is, can it keep up the momentum? In this article, I will explore whether EQB’s growth and, by extension, its stock performance, is sustainable over the long term.

Strong earnings

EQB’s most recent earnings release was a beat, exceeding analyst estimates of revenue as well as profit. Specifically, the company delivered

• $284.6 million in revenue, up 72%;
• $251.7 million in net interest income, up 50%;
• $130 million in net income, up 122%;
• 367,000 customers, up 31%; and
• $32 billion in deposits, up 25%.

It was an incredibly strong showing. As the figures above clearly demonstrate, the growth was off the charts. Additionally, the company beat expectations by wide margins, ahead by 15% on earnings per share and 1.36% on revenue.

A small base to start from

Another big advantage that EQB has when it comes to growth is its size. The smaller a company is, the easier it is for it to achieve high percentage growth. This is because, as companies grow, the number of incremental dollars required to achieve a percentage point in growth rises. If a company gets to the point where it does a trillion a year in revenue, then an additional $10 billion is needed just to achieve 1% revenue growth!

If you recall the figures I shared in the previous section, you’ll know that EQB does $284.6 billion in quarterly revenue and has $32 billion in deposits. The biggest TSX banks have trillions in deposits. So, compared to them, EQB has a lot more room to grow. This is borne out by EQB’s most recent earnings release, which showed growth that the Big Six banks can only dream about.

Conclusion: EQB could easily keep growing

Taking into account EQB’s historical growth and its market position, it appears that the company can, in fact, keep growing. It grew a lot in the past, and it’s still small enough for its growth strategy to produce continued results. Also, interest rates are currently high. EQB, as a lender, generates more revenue when rates are high — particularly on variable-rate debt. EQB has so many different factors going for it right now that I’d have a hard time imagining a scenario where it doesn’t continue growing for at least another year or two.

If I didn’t have my hands full with other investments right now, I’d strongly consider buying it.

The post Is EQB Inc’s Growth Sustainable? appeared first on The Motley Fool Canada .

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends EQB. The Motley Fool has a disclosure policy .

2023