New rules could hurt Home Capital

Article Excerpt

HOME CAPITAL GROUP INC. $36 remains a hold for aggressive investors. The company (Toronto symbol HCG; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 53.0 million; Market cap: $1.9 billion; Price-to-sales ratio: 3.3; Dividend suspended in May 2017; TSINetwork Rating: Speculative; www.homecapital.com) is a mortgage lender serving borrowers who fail to meet the stricter standards of big banks and traditional lenders. In the quarter ended March 31, 2021, Home Capital’s revenue rose 9.8%, to $139.6 million from $127.2 million a year earlier. That’s because low interest rates continue to spur demand for new mortgages. Per-share earnings gained 125.0%, to $1.26 from $0.56. In addition to the higher revenue, an ongoing efficiency plan and lower loan-loss provisions helped boost the lender’s earnings. However, Canada’s banking regulator recently tightened the stress test rules for home buyers. That could hurt demand from the less-creditworthy borrowers that Home Capital caters to. Home Capital Group is a hold. hold…

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