Perdoceo Education trades below the value implied by discounting its own free cash flow. On a two-stage model running 10 years of +17.7% growth fading to a 2.5% terminal rate, discounted at 9.8%, the shares are worth USD 91.64 against a market price of USD 32.91 — a 64% discount, or +178% to fair value. 56% of that value sits in the terminal period, which is the honest caveat: the further out the cash flow, the more the answer is a statement about assumptions rather than about this year.
The business earns 16.4% on invested capital on a 24.3% operating margin struck against 72.5% gross margins. Of USD 854.84M in trailing revenue, 25.8% converts all the way to free cash flow, and the balance sheet carries debt at 0.06 times equity — in fact a net cash position of USD 619.81M, which buys the time a levered peer would not have. Revenue grew +17.7% over the trailing year, while diluted earnings per share moved +15.6% and EBITDA +19.7%. Blending the multiples available today gives a forward-looking earnings multiple of 12.6x (current 12.6x @ 20% (weights renormalised over 20%)).
Only 1 analyst publish on it, which is the kind of neglect under which mispricing survives. Annual turnover runs 3.1 times the tradeable float, comfortably clearing the 0.75 ratio index committees apply, so institutional demand could be met if it arrived. The obvious way to be wrong is the growth rate. Three points lower and the fair value falls to USD 81.50; three points higher and it reaches USD 102.90. A single point on the discount rate moves it between USD 79.61 and USD 107.57. Beyond the model, the specific items to satisfy yourself on are results due in 1 day.
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The user J_Tyrader has a position in NasdaqGS:PRDO. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
