Grand Canyon Education currently trades at $171.68 per share and has shown little upside over the past six months, posting a small loss of 4.5%. The stock also fell short of the S&P 500’s 10.1% gain during that period.
Is now the time to buy Grand Canyon Education, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Do We Think Grand Canyon Education Will Underperform?
We don't have much confidence in Grand Canyon Education. Here are three reasons you should be careful with LOPE and a stock we'd rather own.
1. Weak Growth in Students Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like Grand Canyon Education, our preferred volume metric is students). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Grand Canyon Education’s students came in at 138,073 in the latest quarter, and over the last two years, averaged 6.8% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Grand Canyon Education’s weak 7.4% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
3. Projected Free Cash Flow Gains to Pump Profits
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the next year, analysts predict Grand Canyon Education’s cash conversion will slightly improve. Their consensus estimates imply its free cash flow margin of 22.2% for the last 12 months will increase to 23.2%, giving it more flexibility for investments, share buybacks, and dividends.
Final Judgment
Grand Canyon Education falls short of our quality standards. With its shares underperforming the market lately, the stock trades at 17.3× forward P/E (or $171.68 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
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