Grand Canyon Education trades at $160.59 per share and has stayed right on track with the overall market, gaining 13.5% over the last six months. At the same time, the S&P 500 has returned 8.8%.

Is now the time to buy LOPE? Find out in our full research report, it’s free.

Why Does Grand Canyon Education Spark Debate?

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

Two Positive Attributes:

1. Operating Margin Reveals a Well-Run Organization

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Grand Canyon Education’s operating margin has been trending up over the last 12 months and averaged 26.3% over the last two years. On top of that, its profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

2. New Investments Bear Fruit as ROIC Jumps

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We typically prefer to invest in companies with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. Over the last few years, Grand Canyon Education’s ROIC has increased significantly. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

One Reason to be Careful:

Weak Growth in Students Points to Soft Demand

Revenue growth can be broken down into changes in price and volume (for companies like Grand Canyon Education, our preferred volume metric is students). While both are important, the latter is the most critical to analyze because prices have a ceiling.

Grand Canyon Education’s students came in at 127,977 in the latest quarter, and over the last two years, averaged 4.7% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

Final Judgment

Grand Canyon Education’s positive characteristics outweigh the negatives, but at $160.59 per share (or 19.4× forward price-to-earnings), is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

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