Higher education company Grand Canyon Education (NASDAQ:LOPE) reported Q2 CY2024 results beating Wall Street analysts' expectations, with revenue up 8% year on year to $227.5 million. On the other hand, the company expects next quarter's revenue to be around $239.3 million, slightly below analysts' estimates. It made a GAAP profit of $1.19 per share, improving from its profit of $0.96 per share in the same quarter last year.
Is now the time to buy Grand Canyon Education? Find out by accessing our full research report, it's free.
Grand Canyon Education (LOPE) Q2 CY2024 Highlights:
- Revenue: $227.5 million vs analyst estimates of $223.6 million (1.7% beat)
- EPS: $1.19 vs analyst estimates of $1.03 (15.5% beat)
- Revenue Guidance for Q3 CY2024 is $239.3 million at the midpoint, below analyst estimates of $241 million
- The company reconfirmed its revenue guidance for the full year of $1.03 billion at the midpoint
- EPS (GAAP) guidance for Q3 CY2024 is $1.40 at the midpoint, roughly in line with what analysts were expecting
- EPS (GAAP) guidance for the full year is $7.72 at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 47.6%, up from 47.1% in the same quarter last year
- Adjusted EBITDA Margin: 25.7%, up from 22.7% in the same quarter last year
- Free Cash Flow of $89.61 million, up 17.9% from the previous quarter
- Students: 102,676, up 3,150 year on year
- Market Capitalization: $4.32 billion
Founded in 1949, Grand Canyon Education (NASDAQ:LOPE) is an educational services provider known for its operation at Grand Canyon University.
Education Services
A whole industry has emerged to address the problem of rising education costs, offering consumers alternatives to traditional education paths such as four-year colleges. These alternative paths, which may include online courses or flexible schedules, make education more accessible to those with work or child-rearing obligations. However, some have run into issues around the value of the degrees and certifications they provide and whether customers are getting a good deal. Those who don’t prove their value could struggle to retain students, or even worse, invite the heavy hand of regulation.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Unfortunately, Grand Canyon Education's 7.3% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis. 
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Grand Canyon Education's recent history shows its demand slowed as its annualized revenue growth of 5.4% over the last two years is below its five-year trend.
We can better understand the company's revenue dynamics by analyzing its number of students, which reached 102,676 in the latest quarter. Over the last two years, Grand Canyon Education's students averaged 3.5% year-on-year growth. Because this number is lower than its revenue growth during the same period, we can see the company's monetization has risen. 
This quarter, Grand Canyon Education reported solid year-on-year revenue growth of 8%, and its $227.5 million of revenue outperformed Wall Street's estimates by 1.7%. The company is guiding for revenue to rise 7.8% year on year to $239.3 million next quarter, improving from the 6.3% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 6.8% over the next 12 months, a deceleration from this quarter.
When a company has more cash than it knows what to do with, buying back its own shares can make a lot of sense–as long as the price is right. Luckily, we’ve found one, a low-priced stock that is gushing free cash flow AND buying back shares. Click here to claim your Special Free Report on a fallen angel growth story that is already recovering from a setback.
Cash Is King
If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Grand Canyon Education has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company's free cash flow margin averaged 21.7% over the last two years, quite impressive for a consumer discretionary business.
Grand Canyon Education's free cash flow clocked in at $89.61 million in Q2, equivalent to a 39.4% margin. The company's cash profitability regressed as it was 1 percentage points lower than in the same quarter last year, but it's still above its two-year average. We wouldn't read too much into this quarter's decline because investment needs can be seasonal, causing short-term swings. Long-term trends are more important.
Over the next year, analysts' consensus estimates show they're expecting Grand Canyon Education's free cash flow margin of 22.5% for the last 12 months to remain the same.
Key Takeaways from Grand Canyon Education's Q2 Results
We enjoyed seeing Grand Canyon Education exceed analysts' EPS expectations this quarter. We were also glad its revenue outperformed Wall Street's estimates. On the other hand, its number of students unfortunately missed. Also on the negative front, Q3 revenue guidance was below expectations. Zooming out, we think this was a mixed quarter. The stock traded down 3% to $142.96 immediately after reporting.
So should you invest in Grand Canyon Education right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.