Sector financial performance:

This company, who primarily provides postsecondary education of professional technician-automotive technician mainly, has been grouped into professional technician-automotive school sector in education industry.

It seems that demand for training for technician, based on our data, has decreased in the past several years as indicated by decline in the new enrollment and total enrollment in companies in this sector, which presents about 9% annual decline between 2015 and 2017. While offset by the slightly increased average tuition (2-4% annually) the revenue has decreased due to the faster decline in enrollment. However, it seems that the decline in enrollment has slowed down since 2017 (4% in 2018 as compared with 9% for previous years). Increase in tuition has slowed down as well.

Pressure resulted from the decreased revenue has been quickly transferred to companies’ profitability causing companies’ margins shrinking or forcing companies to re-structure business by closing the unprofitable programs/campus. At the same time, companies also tried to low their spending on SG&A by saving and cutting expenses. The typical average gross margin and operating margin are 48% and -5% with an average SG&A as percentage of sales of about 52%.  There is a signal indicating that loss of cash flow may be being improved in 2018 as a result of  further expenses cutting and slowing down pace of declining in enrollment.

According to our analysis, the current companies’ enterprise price/sales ratio is around 0.33 with a debt/asset ratio of 15%.

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Company performance:

Enrollments for this company’s postsecondary education service have decreased constantly in the past four years. As the student enrollment declines, revenues also decrease while have been offset by the raised tuition. Increasing spending in marketing seems to be working on improving enrollment.

The first nine months of fiscal 2018 compared with 2017(ended 20180630)

Net sales decreased about 2.6% primarily due to decrease of 5.2% in full-time student enrollments offset by the increase of 2% in tuition fees.

The fiscal 2017 compared with 2016(ended 20170930)

Net sales decreased about 6.6% primarily due to decrease of 9.2% in full-time student enrollments offset by the increase of 3% in tuition fees.

Fiscal 2016 compared with 2015

Net sales decreased about 4.3% primarily due to decrease of about 9% in full-time student enrollments offset by the increase of 3% in tuition fees.

Fiscal 2015 compared with 2014

Net sales decreased about 4.2% primarily due to decrease of about 8.3% in full-time student enrollments offset by the increase of 5% in tuition fees.

Due to continuingly deceased revenue, this company’s gross margin was down by 300 basis points to about 44% between 2015 and 2017 as a result of deleverage of operating expenses (including depreciation). During the same time, the SG&A as percentage of sale decreased by about 70 basis points as a result of cutting expenses such as cutting workforce and re-structure campus. Its operating margin actually went down below 0% (-0.5%) in 2017 (based on 12 months trailing data). However, due to increasing spending on SG&A and deleverage of expenses as sales increase, its SG&A% increased largely and dragged down its operating margin to -8% in 2018.

Stock price

This stock currently has a companies’ enterprise price/sales ratio of 0.34 ($2.6). We think that its stock is being relatively slightly overvalued compared with its peers.