The stock of Perdoceo Education (NAS:PRDO, 30-year Financials) gives every indication of being modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $13.07 per share and the market cap of $920.6 million, Perdoceo Education stock is estimated to be modestly undervalued. GF Value for Perdoceo Education is shown in the chart below.
Because Perdoceo Education is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 3.7% over the past three years and is estimated to grow 5.07% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Perdoceo Education has a cash-to-debt ratio of 8.92, which is better than 78% of the companies in Education industry. The overall financial strength of Perdoceo Education is 8 out of 10, which indicates that the financial strength of Perdoceo Education is strong. This is the debt and cash of Perdoceo Education over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Perdoceo Education has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $700 million and earnings of $1.77 a share. Its operating margin of 27.81% better than 82% of the companies in Education industry. Overall, GuruFocus ranks Perdoceo Education’s profitability as poor. This is the revenue and net income of Perdoceo Education over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Perdoceo Education’s 3-year average revenue growth rate is in the middle range of the companies in Education industry. Perdoceo Education’s 3-year average EBITDA growth rate is 45.6%, which ranks better than 87% of the companies in Education industry.
Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Perdoceo Education’s ROIC was 53.97, while its WACC came in at 8.78. The historical ROIC vs WACC comparison of Perdoceo Education is shown below:
In short, The stock of Perdoceo Education (NAS:PRDO, 30-year Financials) shows every sign of being modestly undervalued. The company's financial condition is strong and its profitability is poor. Its growth ranks better than 87% of the companies in Education industry. To learn more about Perdoceo Education stock, you can check out its 30-year Financials here.
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