Higher education company Strategic Education (NASDAQ:STRA) reported Q1 CY2024 results topping analysts' expectations, with revenue up 13.1% year on year to $290.3 million. Its non-GAAP profit of $0.24 per share was flat year on year.
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Strategic Education (STRA) Q1 CY2024 Highlights:
- Revenue: $290.3 million vs analyst estimates of $274.3 million (5.8% beat)
- EPS (non-GAAP): $0.24 vs analyst estimates of $0.58 (-$0.34 miss)
- Gross Margin (GAAP): 45.7%, up from 40.4% in the same quarter last year
- Free Cash Flow of $68.44 million, up from $16.39 million in the previous quarter
- Enrolled Students: 87,731
- Market Capitalization: $2.45 billion
Formed through the merger of Strayer Education and Capella Education in 2018, Strategic Education (NASDAQ:STRA) is a career-focused higher education provider.
Education ServicesA whole industry has emerged to address the problem of rising education costs, offering consumers alternatives to traditional education paths such as four-year colleges. These alternative paths, which may include online courses or flexible schedules, make education more accessible to those with work or child-rearing obligations. However, some have run into issues around the value of the degrees and certifications they provide and whether customers are getting a good deal. Those who don’t prove their value could struggle to retain students, or even worse, invite the heavy hand of regulation.
Sales GrowthA company’s long-term performance can give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. Strategic Education's annualized revenue growth rate of 8.8% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Strategic Education's recent history shows the business has slowed as its annualized revenue growth of 2.9% over the last two years is below its five-year trend.
This quarter, Strategic Education reported robust year-on-year revenue growth of 13.1%, and its $290.3 million of revenue exceeded Wall Street's estimates by 5.8%. Looking ahead, Wall Street expects sales to grow 3.3% over the next 12 months, a deceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Over the last two years, Strategic Education has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 8.3%, subpar for a consumer discretionary business.
Strategic Education's free cash flow came in at $68.44 million in Q1, equivalent to a 23.6% margin and up 154% year on year. Over the next year, analysts' consensus estimates show they're expecting Strategic Education's LTM free cash flow margin of 10.4% to remain the same.
Key Takeaways from Strategic Education's Q1 Results
We were impressed by how significantly Strategic Education blew past analysts' EPS expectations this quarter. We were also excited its revenue and operating margin outperformed, driven by better-than-expected student enrollments across the globe and employer-affiliated enrollment in its education technology services segment.
Strategic Education also announced a quarterly dividend of $0.60 per share that will be paid on June 3, 2024 to shareholders as of May 24, 2024.
Zooming out, we think this was a great quarter that shareholders will appreciate. The stock is up 7.3% after reporting and currently trades at $108 per share.