Grand Canyon Education (LOPE)

Higher education company Grand Canyon Education (NASDAQ:LOPE) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 5.3% year on year to $289.3 million. The company expects next quarter’s revenue to be around $240.3 million, close to analysts’ estimates. Its GAAP profit of $2.52 per share was 2.9% above analysts’ consensus estimates.

Company Overview

Founded in 1949, Grand Canyon Education (NASDAQ:LOPE) is an educational services provider known for its operation at Grand Canyon University.

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.

Grand Canyon Education primary competitors include Apollo Global Management (NYSE:APO), Laureate Education (NASDAQ:LAUR), Strayer Education (NASDAQ:STRA), Capella Education (owned by Strategic Education NASDAQ:STRA), and American Public Education (NASDAQ:APEI).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Grand Canyon Education’s sales grew at a sluggish 5.5% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the consumer discretionary sector, but there are still things to like about Grand Canyon Education.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Grand Canyon Education’s annualized revenue growth of 6.9% 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 students, which reached 127,779 in the latest quarter. Over the last two years, Grand Canyon Education’s students averaged 5.7% year-on-year growth. Because this number aligns with its revenue growth during the same period, we can see the company’s monetization was fairly consistent.

This quarter, Grand Canyon Education reported year-on-year revenue growth of 5.3%, and its $289.3 million of revenue exceeded Wall Street’s estimates by 0.8%. Company management is currently guiding for a 5.6% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 5.5% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

Grand Canyon Education’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 26.5% 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, Grand Canyon Education generated an operating profit margin of 30.4%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Grand Canyon Education’s EPS grew at an unimpressive 8.3% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t expand.

In Q1, Grand Canyon Education reported EPS at $2.52, up from $2.29 in the same quarter last year. This print beat analysts’ estimates by 2.9%. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

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.

Grand Canyon Education has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the consumer discretionary sector, averaging 22.4% over the last two years.

Grand Canyon Education’s free cash flow clocked in at $58.68 million in Q1, equivalent to a 20.3% margin. The company’s cash profitability regressed as it was 7.4 percentage points lower than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends trump fluctuations.

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.

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).

Grand Canyon Education’s five-year average ROIC was 30.2%, placing it among the best consumer discretionary companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

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. Fortunately, Grand Canyon Education’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Grand Canyon Education is a profitable, well-capitalized company with $304.7 million of cash and $105.3 million of debt on its balance sheet. This $199.3 million net cash position is 3.8% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was great to see Grand Canyon Education’s full-year revenue and EPS guidance top analysts’ expectations. We were also glad its revenue, EPS, and EBITDA exceeded Wall Street’s estimates. Overall, this print had some key positives. The stock remained flat at $185.51 immediately following the results.

Updated: May 21, 2025 at 10:51 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 Grand Canyon Education.

Grand Canyon Education is a fine business. Although its revenue growth was weak over the last five years, its impressive operating margins show it has a highly efficient business model. And while its number of students has disappointed, its stellar ROIC suggests it has been a well-run company historically.

Grand Canyon Education’s P/E ratio based on the next 12 months is 21.7x. When scanning the consumer discretionary space, Grand Canyon Education trades at a fair valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $212.67 on the company (compared to the current share price of $193.20), implying they see 10.1% upside in buying Grand Canyon Education in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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