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The share price of IDP Education Ltd (ASX: IEL) has undergone a substantial sell-off, witnessing a nearly 40% decline over the past 11 months. Given this downturn, investors may wonder if the current scenario presents an opportune moment to invest in this beleaguered ASX consumer stock.
IDP Education operates in the English language teaching sector across various countries, administering English language testing in over 80 countries. With a network comprising more than 200 student placement offices across 35 countries, the company plays a significant role in facilitating international education.
Despite the recent share price challenges, the company has exhibited robust profit growth over the years, as highlighted by its FY23 financial results. The financials for the year indicated a 24% revenue increase to $982 million, a 40% surge in adjusted earnings before interest and tax (EBIT) to $228 million, and a noteworthy 45% improvement in net profit after tax (NPAT) to $154 million.
According to UBS, FY24 holds the potential for continued growth, with anticipated EBIT growth of around 18% to $266 million, net profit growth of 11.7% to $172 million, and earnings per share (EPS) growth of 12.7% to 62 cents. Looking ahead to FY25, UBS projects further expansion, with EBIT potentially reaching $331 million, net profit rising to $217 million, and EPS increasing to 78 cents.
While the recent market sentiment seems to suggest headwinds for IDP Education, UBS sees positive factors, such as an "ongoing student placement recovery" and "strong market share gain opportunities (and acceleration potential through Fastlane)." Additionally, UBS notes the company's solid competitive position in English language testing, which is further improving with the implementation of its 'One Skill Retake.'
The current share price is hovering near its 52-week low, representing an attractive valuation, as it is as cheap as it has been since late 2020. With a forward earnings valuation of 32 times for FY24, UBS maintains a bullish outlook, designating it as a buy with a price target of $30.45.
While there might be some caution warranted, considering the recent downturn, IDP Education could be an intriguing consideration for investors, particularly given its historical profit growth and the positive outlook presented by UBS.
