Shares of Grand Canyon Education, Inc. (NASDAQ:LOPE) have rallied 59.6% so far this year, outperforming the 32.2% 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 the past seven 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 2017 earnings rose 1.3%.
Also, earnings estimates for fiscal 2018 have inched up 1% in the same time frame. This signifies bullish analyst sentiments. Also, this Zacks Rank #2 (Buy) company’s robust fundamentals and expectations of outperformance in the near term raise hopes.
Furthermore, the return on equity delivered in the trailing 12 months is 21.4%, while the industry returned 5.3%, reflecting the company’s efficiency in using shareholders’ funds.
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.
Solid Prospects
Grand Canyon makes a great pick in terms of growth investment with a Growth Score of A on our Style Score system that helps us identify potential outperformers. Arguably, nothing is more important than earnings growth as surging profit levels are often indicative of solid prospects.
The company plans to acquire additional property to accommodate approximately 30,000 students. It now has nine colleges, over 220 programs and plan to grow its offerings by a minimum of 20 per year. Grand Canyon has been doing well with net revenue growth of 11.8% to $702.7 million in the nine months of 2017 on increased enrollment.
The company’s continuous investments in full time faculty, counseling services, library services, one-on-one academic support, online classroom enhancements are expected to attract more students, thereby boosting revenues.
Earnings in 2017 are expected to grow 21.9%, way higher than the industry’s projected growth of 13.3%. Additionally, the company’s sales growth in 2017 is projected at around 10.9% compared with the industry’s 0.6%.
Valuation Looks Rational
Grand Canyon has a Value Style Score of B, putting it into the top 40% of all stocks we cover from this perspective.
Grand Canyon currently has a trailing 12 month P/E ratio of 24.8, below the industry’s average of 48.8x. This indicates that the stock is undervalued compared to its peers. Also, the company has a forward PE ratio of 23.3, 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 4.8, lower than the industry average of 6.3. Some prefer this metric over other value-focused ones because sales are harder to manipulate with accounting tricks than earnings.
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health of a business. Grand Canyon has a P/CF of 19.1, lower than the industry’s average of 61.2.
All 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.
Industry Outlook Positive
For-profit education companies have been on the radar since the victory of Donald Trump, as less arduous regulatory environment was assured for such companies during his campaign. Moreover, U.S. Secretary of Education Betsy DeVos assured that revised regulations will be fair and balanced for educational companies and will also protect students from fraudulent practices and deceptive claims.
The Zacks School Industry has rallied 37.6% year to date, outperforming the S&P 500’s gain of 16.7%. Also, a solid industry rank (among the top 28% out of 265 industries) signals that companies in this space are likely to benefit from favorable broader factors in the immediate future.
VGM Score
Grand Canyon has a VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 make solid investment choices.
Other Stocks to Consider
A few other top-ranked stocks in the industry are American Public Education, Inc. (NASDAQ:APEI) , TAL Education Group (NYSE:TAL) and Bright Horizons Family Solutions Inc. (NYSE:BFAM) .
American Public Education sports a Zacks Rank #1, while the other two companies carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
American Public Education’s earnings estimates for 2017 moved 2.9% north in the last 30 days.
Fiscal 2018 earnings for TAL Education are expected to increase 68.2%.
Bright Horizons is expected to witness 22.6% growth in 2017 earnings.
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TAL Education Group (TAL): Free Stock Analysis Report
American Public Education, Inc. (APEI): Free Stock Analysis Report
Bright Horizons Family Solutions Inc. (BFAM): Free Stock Analysis Report
Grand Canyon Education, Inc. (LOPE): Free Stock Analysis Report
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