|Market Growth LT||B|
|Market Growth ST||F|
Investors Betting on a Turnaround Must Be Cautious as Company's Growth Record is Still Very Weak
Bridgepoint Education, traditionally healthy sales growth appears to have virtually ground to a halt during its most recent quarter, in which it booked $221.98 million in total revenue. This represents a decline of 11.36% relative to the year earlier revenue of $250.44 million for the comparable quarter. This drop contrasts to the 78.61% increase in the company's 12-month trailing revenue over a three year period. Bridgepoint Education, had a total of $939.72 million in 12-month trailing revenue up to--and including--its latest quarter compared to the $526.12 million it reported for the equivalent period ended three years ago. This reversal suggests a very rapid deterioration in the company's business which, based on the company's past performance and stable business, might also be affecting its competitors. The company also reported in its latest earnings announcement that profits had fallen from the year earlier period, reversing a trend of long term profit growth. By long term growth we refer to the change in full year (12-month trailing) net income from the comparable period three years earlier. Bridgepoint Education,'s First quarter net fell 18.38% to $26.97 million from the year earlier profit of $33.04 million (excluding extraordinary items) , which contrasts with its growth in 12-month trailing profit over a three year period. Also including last quarter's results, the company's profit grew to $121.89 million for the 12 months ended March 31, 2013, a 66.88% jump from full year profit of $73.04 million reported for the period ended three years earlier. The company's margins have been shrinking steadily during the last three quarters, albeit at a slower rate during the latest period. Its EBITDA, operating and net margins fell on average by 14.16% in the latest quarter versus the year ago period.
The company's positive earnings surprise on May 06, 2013, 4.88% above the consensus view, failed to excite investors as the stock fell 4.18% following the announcement, suggesting the report offered poor guidance for future quarters. In light of this reaction to a positive earnings surprise it's important to consider how this latest release affected the company's overall grade beyond earnings per share considering its earnings surprise record is still positive; over the last six quarters it has reported earnings that have been, on average, 1.86% higher than the consensus estimate.
|Price/Cash Flow Ratio||A|
The Stock's Valuation is Attractive Based on the Company's Overall Financial Strength
Bridgepoint Education,'s stock is trading presently at 5.50 times trailing 12-month earnings per share, which represents a -60.93% discount to the company's "optimum" P/E ratio of 46.96; this ratio is calculated by MarketGrader based on the company's two-year EPS growth rate, which in turn is computed by looking at the rolling 12-month periods ended in each quarter within the two years and measuring their growth. By this measure, Bridgepoint Education,'s earnings per share have grown at an annualized rate of 3.45% in the last two years. This rate of growth could decelerate soon given the company's recent margin contraction, despite such good Profitability grades. This could in turn put pressure on the stock price. The stock's forward P/E of 18.35, based on the next four quarters' estimates, is higher than its trailing P/E and the S&P 500's forward P/E of 15.20. It would seem therefore that investors's growth expectations may already be factored into the stock price despite the company's positive fundamentals.
Bridgepoint Education,'s current market value is only 1.32 times its total book value per share, which suggests investors are currently assigning very little value to the company's ongoing business and its future earnings growth. We normally look at the company's price to tangible book value (which includes intangible assets such as goodwill), but in this case Bridgepoint Education, didn't report any intangible assets in its most recent balance sheet. Based on the $2.15 in cash flow per share generated by the company in the last twelve months, at the current price of $12.53 the stock trades at 5.82 times cash flow, an attractive valuation considering the strength of its overall fundamentals. Its shares also trade at 0.72 times its trailing 12-month sales, a small -63.20% discount to the Other Consumer Services industry average price to sales ratio of 1.96. Our final value indicator looks at the relationship between the company's current market capitalization and its operating profits after deducting taxes. Based on this measure Bridgepoint Education,'s $672.57 million market cap is an acceptable valuation, representing a modest multiple of 21.15 times its latest quarterly net income plus depreciation.
|Return on Equity||B+|
|Quality of Revenues||A+|
Profitability Record Is Excellent Across the Board Suggesting a Very Well Managed Operation
Bridgepoint Education,'s profitability indicators are pretty strong across the board, with strong returns on shareholder equity, industry-beating operating margins and a very healthy net profit margin. The $121.89 million in net profits earned by the company in the last 12 months account for 12.97% of all revenue booked in the period. The average operating margin for the Other Consumer Services industry was 12.60% during the same period, 60.25% below the company's 21.77%. Based on its trailing 12-month earnings, Bridgepoint Education, return on equity of 23.34% is a very strong indicator of profitability and a positive reflection on the company's management efficiency. However, it represents a decline from the year earlier period's return on equity of 38.53%, possibly spelling a slowdown in the company's business.
In spite of this recent downturn and given the still-strong performance by the company its leverage has plenty of room to grow considering Bridgepoint Education, has no debt at all. Bridgepoint Education,'s core earnings have shown a significant slowdown in the company's business based on twelve month trailing EBITDA of $226.25 million. This represents a 11.93% decline from the same period ended a year earlier in which the company's core operations generated $256.88 million. EBITDA is used as a measure of earnings power because it includes non-operating charges like interest expenses, income taxes and depreciation and amortization, which aren't even cash expenses. All of these are included in several areas of our analysis that look at EPS and net income.
|Cash Flow Growth||F|
|Debt/Cash Flow Ratio||A+|
|Interest Cov. Capacity||A+|
Company's Cash Flow Indicators Are Solid Across the Board but Offer Some Room for Improvement
Bridgepoint Education,' cash flow fell considerably during the latest quarter to $15.62 million, a 61.30% decline from the $40.35 million reported after the same quarter last year. This marks an accelerating decline from twelve month trailing cash flow, which fell to $118.45 million in the period ended last quarter, 34.08% lower than the $179.70 million in the year earlier period, underscoring the ongoing deterioration of the company's business. The company clearly has very strong liquidity having no debt to finance, $428.46 million in cash on hand as of last quarter and a business that generated $326.74 million in earnings before interest, taxes, depreciation and amortization in the same period. This affords it significant flexibility to take on debt if it wanted to pursue new growth opportunities such as an acquisition. The company had $428.46 million in cash on hand last quarter compared to $326.74 million a year earlier, a 31.14% increase. It continues to have no debt.
Our Economic Value indicator measures the company's ability to generate a true economic profit by taking into account not only the costs of running the business but also the cost of capital. In Bridgepoint Education,'s case, since the company has no debt, we only look at the cost of equity, which is to say the opportunity cost to an investor of having his capital tied up in the company's shares instead of some other investment. Based on its 12-month trailing operating income, Bridgepoint Education, generated a 39.18% return on $522.12 million of invested capital. Since it has no debt this simply includes all forms of equity. Its after tax cost of equity during the last year was 8.78%, which, when deducted from its return on investment results in an economic value added, or EVA, of 30.40%. This is a remarkable return to its shareholders, more than justifying their investment in Bridgepoint Education,'s shares. Bridgepoint Education, does not pay a dividend and hasn't done so within at least the last five years.