This valuation was done on the 2021-02-11
EDUC doesn't have too many competitors. The other competitors in this space are all in the book publishing industry but none of them (from what I could see) have the unique sales approach of MLM (multi-level-marketing) that EDUC has. Because of this, EDUC has benefited extremely well from the COVID pandemic as the majority of it's revenue is derived from MLM whereas other book publishes rely on sales to book stores which have been closed.
Because of COVID the amount of parents who have stayed at home has sky-rocketed due to schools being shut and jobs being lost or furloughed, this has played directly into EDUC's MLM strength as more parents are looking for a side income or a way to make money in their spare time. Combine this with their existing knowledge of Usbourne books and it has resulted in a record number of consultants for the company, rising from 33,600 in Nov. 2019 to 57,200 in Nov. 2020, an increase of 70.2%. These consultants are the ones driving new sales of EDUC books to their existing network. As we all know, MLM's are terrible money makers for the consultants and only a select few of them make any amount of significant money, however for the owners of the company (i.e us) it is very profitable.
EDUC has very nice debt-equity ratio's and interest coverage. Their operating margins and ROIC are also above the industry average.
The key figure from above is the price-to-owner-earnings and price-to-operating-cash-flow. They are extremely small at just 4.38 and 4.11
The PEG ratio of 0.29 is artificially too low here because we shouldn't expect this exponential growth of earnings to continue into the future at the same rate when COVID slows down. However it's ratio is still very very low. Basically on every relative measure we get a nice low ratio.
Given that EDUC has already received massive growth from COVID, I expect it the growth to slow down rapidly once the restrictions have been eased. In fact, in the next year they could even have flat or slightly negative growth as consultants leave back to their old jobs.
I put 10% here as I think this is what they can achieve given their past performance and new consultants army.
This was chosen as I expect the new logistics and warehouse investments (which management discussed in their recent earnings call) to take affect. I also think their margins should be sustained as they have stopped selling on amazon and the new consultants should sustain this margin for EDUC.
There isn't a big difference in my 10 year oper. margin target and the current oper. margins so this value doesn't really matter.
I looked at EDUC's past sales to capital ratio's (excluding their TTM which has been inflated due to COVID) and think they can achieve this as EDUC doesn't really have to invest much any more to sustain their growth due to the natural network affect of consultants recruiting new consultants.
Hint: Have a play with the below inputs yourself and see how the valuation changes.
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in (millions), except per share amounts
I have estimated the shares to have a share price of - per share.
On the 11th Feb. 2021 they traded for - a share which gives a margin of safety of .
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