Sector financial performance:

This company, who primarily provides training and consulting services to improve individual and organizational performance, has been grouped into performance improvement consulting sector in education industry.

From the sales of companies in this sector, it seems that the demand for training and performance improvement consulting services from customers of US market is not strong. Companies in this sector continued to expand their services to international market, which seems to be growing quickly.

Due to tightened demand and thus pressured sales, companies have usually faced issues of shrinking gross margins and increasing SG&A as percentage of sales. As a result, companies’ operating margins all decreased to some extent. The typical operating margins among those companies are between -1.5% and 4% down from 8-12% three years ago.

According to our analysis, the typical companies’ enterprise price/EBI ratio is 34 with an interest/EBITDA ratio of 22%. The typical companies’ enterprise/sales ratios are 0.8-1.9.

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Company performance:

It seems that the demand for performance improvement training and consulting service has been increasing as indicated by accelerating increased organic sales between 2015 and 2017. However, it seems that the growth has been slowing since the half of 2017.

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

Net organic (excluding currency) sales decreased about 0.4% (flat for 2Q).

The fiscal 2017 compared with 2016(ended 20171231)

Net organic sales (excluding currency) increased about 2.8%.

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

Net organic sales increased about 6%.

Fiscal 2016 compared with 2015

Net organic sales increased about 2.8%.

Fiscal 2016 compared with 2015

Net organic sales were flat.

This company’s gross margin went down by about 150 basis points in the previous three years to about 16% in 2017. During the same time, the SG&A as percentage of sales also decreased by about 100 basis points. Its operating margin went down to about 6% in 2017 (based on 12 months trailing data). Margin continued to shrink (to 4%) in 2018 as a result of declining sales since 4Q of 2017.

Stock price

This stock currently has a companies’ enterprise price/EBI ratio of 34 ($19). We think that its stock is being relatively overvalued considering that, while the cash flow that has been used to calculate the ratio was not able to reflect all factors including impacts from the unfavourable changes in foreign currency, sales is declining.