Laureate Education (LAUR)

Higher education company Laureate Education (NASDAQ:LAUR) announced better-than-expected revenue in Q1 CY2025, but sales fell by 14.2% year on year to $236.2 million. The company expects the full year’s revenue to be around $1.57 billion, close to analysts’ estimates. Its GAAP loss of $0.13 per share was 31.6% above analysts’ consensus estimates.

Company Overview

Founded in 1998 by Douglas L. Becker and based in Miami, Laureate Education (NASDAQ:LAUR) is a global network of higher education institutions.

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.

Laureate Education's primary competitors include Strategic Education (NASDAQ:STRA), Adtalem Global Education (NYSE:ATGE), and Grand Canyon Education (NASDAQ:LOPE).

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Laureate Education’s demand was weak and its revenue declined by 3.4% per year. This wasn’t a great result and suggests it’s a lower quality business.

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. Laureate Education’s annualized revenue growth of 9.1% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s revenue dynamics by analyzing its number of enrolled students, which reached 477,000 in the latest quarter. Over the last two years, Laureate Education’s enrolled students averaged 5.7% 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, Laureate Education’s revenue fell by 14.2% year on year to $236.2 million but beat Wall Street’s estimates by 4.9%.

Looking ahead, sell-side analysts expect revenue to grow 3.1% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.

Laureate Education’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 22.5% over the last two years. This profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

This quarter, Laureate Education generated an operating profit margin of negative 5.6%, down 9.6 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Laureate Education, its EPS declined by 13.5% annually over the last five years, more than its revenue. We can see the difference stemmed from higher interest expenses or taxes as the company actually grew its operating margin and repurchased its shares during this time.

In Q1, Laureate Education reported EPS at negative $0.13, down from negative $0.07 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Laureate Education’s full-year EPS of $1.88 to shrink by 20.2%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Laureate Education has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 12.8% over the last two years, slightly better than the broader consumer discretionary sector.

Laureate Education’s free cash flow clocked in at $53.2 million in Q1, equivalent to a 22.5% margin. This result was good as its margin was 16.3 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts’ consensus estimates show they’re expecting Laureate Education’s free cash flow margin of 12.9% for the last 12 months to remain the same.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Laureate Education historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.5%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Laureate Education’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

Laureate Education reported $109.8 million of cash and $434.2 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $424.8 million of EBITDA over the last 12 months, we view Laureate Education’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $8.19 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Laureate Education blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad it raised its full-year revenue guidance. On the other hand, its number of enrolled students missed, but we still think this was a solid quarter with some key areas of upside. The stock traded up 2.3% to $20.50 immediately after reporting.

Updated: July 10, 2025 at 10:42 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Laureate Education.

Laureate Education’s business quality ultimately falls short of our standards. First off, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. And while its impressive operating margins show it has a highly efficient business model, the downside is its projected EPS for the next year is lacking. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Laureate Education’s P/E ratio based on the next 12 months is 15.9x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $24.88 on the company (compared to the current share price of $23.86).