Grand Canyon Education, Inc.’s (LOPE - Free Report) shares have rallied 54.8% in the past year, outperforming 35.9% gain of the industry it belongs to. Also, the company has outperformed the industry in each of the 4-week, 12-week and 52-week time frames.
The price performance is backed by an impressive earnings history. Grand Canyon surpassed earnings estimates consistently for more than the past 20 quarters. Moreover, earnings estimates have risen over the past few weeks, suggesting that sentiments on Grand Canyon are moving in the right direction. Over the last 30 days, the Zacks Consensus Estimate for 2018 earnings rose 13.8%.
Also, earnings estimates for 2019 have inched up 13.2% in the same time frame. This signifies bullish analysts’ sentiments. Also, this Zacks Rank #1 (Strong Buy) company’s robust fundamentals and expectation of outperformance in the near term raise hopes. You can see the complete list of today’s Zacks #1 Rank stocks here.
This post-secondary education provider, with a market cap of $4.3 billion, has strengths in several key areas. Thus, adding the stock to your portfolio seems prudent.
What Might Drive the Stock Higher
Earnings & Revenue Strength: Grand Canyon finished 2017 with a solid revenue and earnings growth. The company’s top line increased 11.5% to $974.1 million and operating income grew 19.2% to $282.8 million with operating margins expanding 180 basis points. The bottom line showed solid 26.7% growth (excluding the deferred tax asset revaluation) to $3.99 from $3.15 in 2016.
Notably, cash flow from operations increased 28.2% to $304.9 million in 2017. Free cash flow was $191.3 million in 2017, more than triple compared with $59.5 million in 2016.
Grand Canyon recorded an earnings growth rate of 19.4% over the last three to five years against the industry’s 2.2% decline. The company’s earnings growth rate for the current year is anticipated to be 118.7%.
Moreover, the long term (three-five years) expected EPS growth of 13% promises rewards for its shareholders.
The company’s continuous investments in its full time faculty, counseling and library services, one-on-one academic support, and online classroom enhancements are expected to attract more students, thereby boosting revenues.
Upbeat Guidance: In the last reported quarter, enrollments grew 10.2% and management’s long-term target calls for 6-8% total enrollment growth annually, with 6-7% to come from online enrollments and the rest from its ground campus.
Management calls for net revenues of $1,054 million, higher than the 2017 level of $974.1 million. EPS is expected to be $4.69, reflecting an improvement of 17.5% year over year.
Superior ROE: Grand Canyon’s return on equity (ROE) supports its growth potential. Its ROE of 21.2% compares favorably with the industry’s average of 4.8%, implying that it is efficient in using shareholders’ funds.
Valuation Looks Rational: Grand Canyon currently has a trailing 12-month P/E ratio of 26.7, below the industry’s average of 58.9x. This indicates that the stock is undervalued compared to its peers. Also, the company has a forward P/E ratio of 22.4; so it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term as well.
Looking at the company’s sales, the company currently trades at a price-to-sales (P/S) ratio of 5.3, lower than the industry’s average of 7.2. Some prefer this metric over other value-focused ones because sales are harder to manipulate with accounting tricks than earnings.
These ratios show that the company is undervalued in comparison to its industry peers and thus, it a good time to place a bet on the stock.
Other Stocks to Consider
Other top-ranked stocks in the industry are American Public Education, Inc. (APEI - Free Report) , Capella Education Company and Bright Horizons Family Solutions Inc. (BFAM - Free Report) .
American Public Education sports a Zacks Rank #1, while the other two companies carry a Zacks Rank #2 (Buy).
American Public Education’s earnings estimates for 2018 moved 37.6% north in the last 30 days.
2018 earnings for Capella Education are expected to increase 23%.
Bright Horizons is expected to witness 16.7% earnings growth in 2018.
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