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Adtalem currently trades at $99.41 and has been a dream stock for shareholders. It’s returned 294% since April 2020, nearly tripling the S&P 500’s 101% gain. The company has also beaten the index over the past six months as its stock price is up 36% thanks to its solid quarterly results.
Is now the time to buy Adtalem, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
We’re happy investors have made money, but we're swiping left on Adtalem for now. 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
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Adtalem grew its sales at a 10.1% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.
2. 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 6.4%, a slight deceleration versus its 8.2% annualized growth for the past two years. This projection is underwhelming and implies its products and services will face some demand challenges.
3. Previous Growth Initiatives Haven’t Impressed
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%+.
Final Judgment
Adtalem isn’t a terrible business, but it isn’t one of our picks. With its shares beating the market recently, the stock trades at 16.2× forward price-to-earnings (or $99.41 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of our top digital advertising picks.