Sector financial performance:

This company, who is a provider of employer sponsored child care and early education, has been grouped into child care sector in education industry.

It seems that demand for employer sponsored child care and early education service in the past several years has been strong and grown fast, which presents an average of 7-14% annual growth in enrollments in mature centers and new centers in the past several years. It seems that enrollment may be declining in the first half of 2018 but not sure whether it is because of same center decline or slowing down new opening of new centers.

Our data indicate, from a typical company, that there was an increase in company’ gross margins and operating margins in the past several years during the same time when its revenue increased as a result of both increase in tuition and enrollment. The typical gross margin is about 23% (including amortization of intangible assets) with a SG&A as percentage of sales of average 11%.  The typical operating margin is 12% presenting an increase from 10% about four years ago.

According to our analysis, the current companies’ enterprise price/EBI ratio is 55 with an interest/EBITDA ratio of 15%.

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Company performance:

It seems that the demand for this company center service from employers has been very strong in the past several years as indicated by increased enrollment. The increase in enrollment in 2018 seems to be not as strong as years before 2017.

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

Revenue increased about 10% (10% for 2Q) primarily from increase of 5% (6% for 2Q) in enrollment of new child care and early educational centers and annual increase of 3-4% in tuition.

The fiscal 2017 compared with 2016

Revenue increased about 11% primarily from increase of 12% in enrollment of child care and early educational centers and annual increase of 3-4% in tuition.

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

Revenue increased about 11% primarily from increase of 14% in enrollment of new child care and early educational centers and annual increase of 3-4% in tuition.

Fiscal 2016 compared with 2015

Revenue increased about 8% primarily from increase of 7% in enrollment of new child care and early educational centers and annual increase of 3-4% in tuition.

Fiscal 2015 compared with 2014

Revenue increased about 8% primarily from increase of 7% in enrollment of child care and early educational centers and annual increase of 3-4% in tuition.

Its gross margin (including amortization of intangible assets) went up to approximate 23% since 2014 due to higher margin of new acquired and new centers and more efficient management. Its SG&A as percentage of sales is about 11% and its operating margin is about 12% in 2018.

Stock price

This stock currently has an enterprise price/EBI ratio of 55 ($116). We think that its stock is being relatively slightly overvalued with its peers considering that while still growing cash flow the strong increase in demand for this company’s service as reflected by increase in both tuition and enrollments in the past several years may be having a pause.