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Since January 2020, the S&P 500 has delivered a total return of 81.4%. But one standout stock has doubled the market - over the past five years, Adtalem has surged 163% to $91.12 per share. Its momentum hasn’t stopped as it’s also gained 35.1% in the last six months thanks to its solid quarterly results, beating the S&P by 27.8%.
Is there a buying opportunity in Adtalem, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
We’re glad investors have benefited from the price increase, but we don't have much confidence in Adtalem. Here are three reasons why ATGE doesn't excite us and a stock we'd rather own.
Why Is Adtalem Not Exciting?
Formerly known as DeVry Education Group, Adtalem Global Education (NYSE:ATGE) is a global provider of workforce solutions and educational services.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Adtalem grew its sales at a tepid 9.6% compounded annual growth rate. This fell short of our benchmark for the consumer discretionary sector.
2. Previous Growth Initiatives Haven’t Paid Off Yet
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Adtalem historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.8%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
3. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Adtalem’s revenue to rise by 3.9%, a slight deceleration versus its 6.1% annualized growth for the past two years. This projection is underwhelming and suggests its products and services will face some demand challenges.
Final Judgment
Adtalem’s business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at 15.5× forward price-to-earnings (or $91.12 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. We’d recommend looking at Cloudflare, one of our top software picks that could be a home run with edge computing.