Sector financial performance:

This company, who primarily provides K-12 and higher education educational materials and technology solutions for test related services and educational services, has been grouped into K-12 materials sector in education industry.

The decline in sales for those companies in this sector who focus on traditional instructional materials/assessment (k-12) seems to slow down in 2017, a trend that has continued in the past several years primarily due to less new adoption from state and local government. The trend seems to be continuing in 2018.  However, it seems that the demand for technology–based educational/learning solutions (k-12) has been increasingly strong as indicated by fast increase in revenue of companies who focus on this type of products during the same period of time.

Based on the extent of demand for their products, companies in this sector present different trends in terms of their margins. We saw an apparent decrease in gross margin (about 42.5% in 2018) for those companies who focus mainly on traditional educational materials and a significant increase in gross margin ( 70% in 2018) for companies who have been successfully shifting their products to technology solution. The average SG&A as percentage of sales of companies in this sector concentrates on a range of 45-47%. Generally, the typical operating margin for traditional solution companies ranges from -5% to 7% in 2018.

According to our analysis, the current companies’ enterprise price/sales ratio is between 1.3 and 3.9 with a debt/asset ratio of 30%. The current companies’ enterprise price/EBI ratio is between 36 and 39 with a debt/asset ratio of 30%.

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Company performance:

Data indicates that revenue of this company from US market has been in downward pressure between 2015 and 2017 primarily due to the lower revenue from its school assessment business and as well from higher education and less new adoption for courseware. However, since the last quarter of 2017, it seems that the demand from US higher education and other product and service has started to increase.

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

Organic revenues increased by about 2% primarily due to increase of 3% in US in higher education and school courseware and school assessment.

The 2017compared with 2016

Organic revenues decreased by about 2% primarily due to decrease in US in higher education and school courseware and school assessment.

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

Organic revenues increased by about 1%. Revenue in US market was flat.

Year 2016 compared with 2015

Organic revenues decreased by about 8%. Revenue in US market decreased by 10% primarily due to decrease in revenue from US higher education and from school assessment.

Year 2015 compared with 2014

Organic revenues decreased by about 2%. Revenue in US market decreased by 1% primarily due to decrease in revenue from US school assessment.

Its gross margin (including publishing rights) went down by about 150 basis points to about 54% in 2017 since 2014 primarily due to the sales shifting away from higher margin solution/products. During the same time, its SG&A as percentage of sales have also increased to 49% from about 47% of 2014 and its operating margin went down to current about 5% (based on 12 months trailing data). In 2018, the SG&A% was down and caused operating margin improved to 6.5%.

Stock price

This stock currently has a companies’ enterprise price/EBI ratio of 37 (BP8.8). We think that its stock is being relatively overvalued considering the sustainability of its cash flow’s growth, which has been benefited primarily from exchanges of currency.