Sector financial performance:

This company that primarily provides postsecondary, degree-granting education programs and diploma through online and on-campus focusing on no-traditional students 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 degree programs and on-campus programs has been weak in the past several years as indicated by continuingly quickly decrease in enrollment. This company frequently raised tuition to offset the increased operating costs.

The fiscal 2017 compared with the 2016 (ended 20180531)

Revenue decreased by about 11% attributable primarily to decrease in average enrollment partially offset by increase in raised tuition.

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

Revenue decreased by about 8% attributable primarily to decrease of about 14% in average enrollment partially offset by increase in raised tuition.

Fiscal 2016 compared with 2015

Revenue decreased by about 10% attributable primarily to decrease in average enrollment partially offset by increase in raised tuition.

Fiscal 2015 compared with 2014

Revenue decreased by about 18% attributable primarily to decrease in average enrollment partially offset by increase in raised tuition.

Its gross margin (include depreciation and rentals but exclude admission expenses and marketing) went down to about 66% from about 74% primarily due to deleverage of fixed expenses as a result of decreased revenue and added costs for new opened programs. During the same time, the SG&A as percentage of sales went up to about 73% due to the deleverage of expenses of admission, marketing, and G&A as a result of revenue’s fast decrease. Its operating margin thus went down to about -11% from about 9% in the past several years. Its cash flow has continued to decline.

Stock price

This stock currently has an enterprise price/sale ratio of 0.4 ($0.9). We think that its stock is being relatively overvalued considering its current cash flow issues.