APEI American Public Education, Inc

Sector financial performance:

This company that primarily provides online and on campus postsecondary education has been grouped into private university –online sector in education industry.

It seems that demand for online or on-campus degree granting programs from non-traditional students – working students mainly has been weak in the past several years  as indicated by decreasing enrollment for the companies in this sector(about 2-5% organic decrease annually ). Shrinking demand resulted in increase in intense in competition for students, which put huge pressure on admission. Companies have to spend more on promotion and marketing such as scholarship.

As enrollment/revenue decreases, companies’ profitability has been hurt. As a reaction to shrinking cash flow, companies have to keep raising tuition while decreasing enrollment, cutting expenses, and closing underperformance programs.  It seems those measurement have been working to help improve companies’ profitability since 2017. However, for those that have to raise tuition, they may have to experience continuingly decrease in enrollment and thus revenue and have had to retire more unprofitable programs.

As a result of impacts described above, almost all of companies’ gross margins (include depreciation and amortization, rent, and exclude marketing expenses) went down between 2015 and 2017. Our data indicate those companies’ gross margins were between 42-68% (average 56%) with admission and marketing experience as percentage of sales of 27% (average) and G&A as percentage of sale of 12% (average) in 2017. The average operating margin among those companies is 7%. Since 2017, the average gross margin was improved to about 62% probably due to rising tuition and teach-out of schools. And. With help costs saving in SG&A, the operating margin up to about 8.5% in 2018.

According to our analysis, the current companies’ enterprise price/EBI ratio is between 24 and 33and enterprise price/sales is between 0.4-5.2.

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Company performance:

It seems that the demand for this company’s online education program (servicing military student) has been contracting in the past several years as indicated by continuing decrease in online courses registration. Enrollment in its nursing programs decreased slightly as well between 2015 and 2017 but started to increase in 2018.

The first six months of fiscal 2018 compared with same period of 2017

Revenue was flat (up 0.8% for 2Q) primarily due to decrease (flat for 2Q) in online courses registration offset by increase (up 15% for 2Q) in on-campus enrollment.

The fiscal 2017 compared with 2016

Revenue decreased about 4.4% primarily due to decrease in online courses registration offset by increase in on-campus enrollment.

The first nine months of fiscal 2017 compared with the same period of the 2016

Revenue decreased about 5.7% primarily due to decrease in online courses registration offset by increase in revenue per student from on campus nursing programs. 

Fiscal 2016 compared with 2015

Revenue decreased about 4.5% primarily due to decrease in online courses registration and on campus enrollment as a result of increased competition, marketing, and admission.

Fiscal 2015 compared with 2014

Revenue decreased about 6.3% primarily due to decrease in online courses registration as a result of increased competition, marketing and admission.

Its gross margin (direct costs only, include depreciation and amortization) went down to about 55% from 60% since 2014 primarily due to deleverage of expenses as a result of decreased revenue from online courses and increased depreciation.  During the same time, the SG&A as percentage of sales increased to 43% due to increase in general administration. Its operating margin thus went down to about 12% from about 19% in 2014.

Stock price

This stock currently has an enterprise price/EBI ratio of 23($31.6). We think that its stock is being relatively undervalued considering that, while courses registration continued to decline, its current stock price is still low compared with its profitability.