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Why Grand Canyon Education Stock Fell 16% in May

By Jeremy Bowman - Jun 5, 2021 at 12:57PM

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Disappointing guidance helped push the stock lower.

What happened

Shares of Grand Canyon Education (LOPE 1.26%) were heading lower last month after the for-profit educator offered disappointing guidance in its first-quarter earnings report. According to data from S&P Global Market Intelligence, the stock finished May down 16%.

As you can see from the chart below, all of the losses came after the company reported earnings on May 5.

^SPX Chart

^SPX data by YCharts

So what

Grand Canyon's results for the first quarter were better than expected. The company posted 6.5% revenue growth to $236.9 million, which topped estimates at $235 million.

A woman in cap and gown hugging her mom.

Image source: Getty Images.

GCE, which provides services to 26 universities, said that university partner enrollments increased 7.2% from the year-ago quarter, but it's still feeling an impact from the COVID-19 pandemic. 

On the bottom line, adjusted earnings per share increased from $1.53 to $1.72, which edged out estimates at $1.67.

The reason why the stock fell seemed to be because of management's warning about the pandemic. The company noted that it expected revenue headwinds through the summer as it predicted that dormitory and ancillary revenues at Grand Canyon University, its biggest client, would be lower than pre-COVID levels in the summer. It also said that the pandemic has had an operational impact on the business as 90% of its workforce is still remote.

Now what

For the full year, Grand Canyon expects revenue of $919.9 million and adjusted earnings per share of $6.19, which compares to the analyst consensus at $925.1 million in revenue and EPS at $6.18. Second-quarter guidance was also slightly below the consensus.

The for-profit education sector has shrunk over the last decade, in part due to a crackdown from the Obama administration, and the Biden administration could make it difficult for the industry to make a comeback.

Still, Grand Canyon Education seems to have found a smart business model as a services provider, removing the risk of attracting the government's ire as a for-profit college dependent on student loans.

Grand Canyon is a high-margin business delivering steady growth and trading at a price-to-earnings ratio under 15. Investors may want to take advantage of the recent sell-off.

 

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Grand Canyon Education. The Motley Fool has a disclosure policy.

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