Should You Exit This Small-Cap Education Services Stock – PRDO

Feb 25, 2022 12:00 AM PST | Team Kalkine
Should You Exit This Small-Cap Education Services Stock – PRDO


Perdoceo Education Corporation

Perdoceo Education Corporation (NASDAQ: PRDO) provides post-secondary education through online, campus-based, and blended learning programs to a broad student population. PRDO offers master's, and doctoral degree programs, and associate and bachelor's degree programs through its two accredited institutions, The Colorado Technical University (CTU) and the American InterContinental University System (AIU).

Should Investors make exit?

  • Significant Decline in Profitability: Net income declined 30.47% YoY to USD 27.77 million in Q3FY21 (ended September 30, 2021) from USD 39.94 million in Q3FY20.
  • Weak Margin Profile: In Q3FY21, PRDO’s reported net margin was 16.0% which was lower than the 23.6% reported in the same period of the corresponding previous financial year.
  • Dependence on Title IV programs: In FY20, students enrolled in Title IV programs accounted for 74% of PRDO's total enrolment, resulting in USD 525 million in cash receipts. The company must adhere to the Department of Education's (DOE) comprehensive Title IV programme regulatory requirements, prohibiting proprietary institutions that derive more than 90% of their total revenue from Title IV programs for two consecutive fiscal years from participating in Title IV programs for the next two years. This could result in a reduction in programme financing and harm the company's finances.
  • Technical weakness: On the daily chart, PRDO prices are sustaining below the downward sloping trend line and facing the resistance of the same. Furthermore, the momentum oscillator RSI (14-period) is trading at ~35.11 level, showing that stock is approaching oversold territory. However, on the daily chart the prices are trading below the trend-following indicators 21-period and 50- period SMA, which may act as a resistance level for the stock. An important support level for the stock, is placed at USD 8.80 while the key resistance level is placed at USD 11.20.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

PRDO's share price has declined 16.76% in the past nine months and is currently leaning towards the lower band of the 52-week range of USD 9.65 to USD 13.95. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 9.18.

Considering the company's declining profitability, margins, dependence on Title IV programs, current valuation and associated risks. We recommend a "Sell" rating on the stock at the closing price of USD 10.08, traded flat as of February 23, 2022.     

Three-Year Technical Price Chart (as of February 23, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.