Higher education company Grand Canyon Education (NASDAQ:LOPE) reported Q4 CY2024 results beating Wall Street’s revenue expectations , with sales up 5.1% year on year to $292.6 million. The company expects next quarter’s revenue to be around $287 million, coming in 0.5% above analysts’ estimates. Its GAAP profit of $2.84 per share was 1% below analysts’ consensus estimates.
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Grand Canyon Education (LOPE) Q4 CY2024 Highlights:
Company Overview
Founded in 1949, Grand Canyon Education (NASDAQ:LOPE) is an educational services provider known for its operation at Grand Canyon University.
Education Services
A whole industry has emerged to address the problem of rising education costs, offering consumers alternatives to traditional education paths such as four-year colleges. These alternative paths, which may include online courses or flexible schedules, make education more accessible to those with work or child-rearing obligations. However, some have run into issues around the value of the degrees and certifications they provide and whether customers are getting a good deal. Those who don’t prove their value could struggle to retain students, or even worse, invite the heavy hand of regulation.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Grand Canyon Education grew its sales at a sluggish 5.8% compounded annual growth rate. This fell short of our benchmark for the consumer discretionary sector, but there are still things to like about Grand Canyon Education.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Grand Canyon Education’s annualized revenue growth of 6.5% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.
Grand Canyon Education also discloses its number of students, which reached 123,149 in the latest quarter. Over the last two years, Grand Canyon Education’s students averaged 4.8% year-on-year growth. Because this number is lower than its revenue growth during the same period, we can see the company’s monetization has risen.
This quarter, Grand Canyon Education reported year-on-year revenue growth of 5.1%, and its $292.6 million of revenue exceeded Wall Street’s estimates by 1.1%. Company management is currently guiding for a 4.5% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 4.9% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
Grand Canyon Education has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the consumer discretionary sector, averaging 22.7% over the last two years.
Grand Canyon Education’s free cash flow clocked in at $126.1 million in Q4, equivalent to a 43.1% margin. This result was good as its margin was 5 percentage points higher than in the same quarter last year. Its cash profitability was also above its two-year level, and we hope the company can build on this trend.
Over the next year, analysts predict Grand Canyon Education’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 24.5% for the last 12 months will decrease to 23.4%.
Key Takeaways from Grand Canyon Education’s Q4 Results
It was great to see Grand Canyon Education’s revenue narrowly outperform Wall Street’s estimates. On the other hand, its number of students missed and its full-year revenue and EPS guidance fell short of analysts' expectations. Zooming out, we think this was a mixed quarter. The stock remained flat at $184.02 immediately after reporting.
Is Grand Canyon Education an attractive investment opportunity at the current price? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free .
