ADTALEM GLOBAL EDUCATION INC (NYSE:ATGE): A Value Stock with Strong Fundamentals and Growth Potential

For investors aiming to construct a portfolio using value investing principles, the central method involves finding companies trading for less than their inherent value. This strategy, established by Benjamin Graham and notably used by Warren Buffett, demands a strict focus on financial soundness, earnings power, and sensible expansion, all while making certain the price paid offers an adequate "margin of safety." A methodical way to use these ideas is by searching for stocks that display good fundamental scores in price, earnings power, and financial soundness, indicating they are both stable businesses and possibly priced too low by the market. One stock appearing from this kind of search is ADTALEM GLOBAL EDUCATION INC (NYSE:ATGE).

Examining Valuation

The main attraction for a value investor is a stock priced well compared to its basic measures. Adtalem’s price metrics make a strong argument. Based on the detailed fundamental analysis report, the company has a Price-to-Earnings (P/E) ratio of 14.49, which is seen as fair on its own. More notably, this price looks low next to both its industry and the wider market.

• Industry Comparison: 72% of companies in the Diversified Consumer Services industry have a higher P/E ratio than ATGE.
• Market Comparison: Its P/E ratio is much lower than the S&P 500 average of about 26.5.
• Forward-Looking Metrics: The price argument becomes stronger when considering the future. ATGE's Price-to-Forward Earnings ratio of 11.45 is lower than 84% of its industry competitors and under the S&P 500 average, showing the market might not completely account for its future earnings.

This lower price is vital for the value approach, as it creates the initial "margin of safety"—purchasing assets for noticeably less than their value.

Reviewing Financial Soundness and Earnings Power

A low price is irrelevant if the company is not financially stable. Value investing stresses lasting businesses that can survive economic shifts. Adtalem receives a good score of 7 out of 10 for Financial Soundness. The report notes very good solvency, with an Altman-Z score of 4.03 (better than 86% of the industry) showing a minimal short-term chance of financial trouble. Also, its debt level is acceptable, with a Debt-to-Equity ratio of 0.38 and a good Debt-to-Free-Cash-Flow ratio of 1.71, meaning it can settle debts fast.

Where Adtalem performs very well is in Earnings Power, getting a high score of 8. Reliable and steady earnings power is a sign of a good business and a main part of value review.

• Return Metrics: The company produces a solid Return on Invested Capital (ROIC) of 12.67%, better than 86% of its industry. This shows management is using capital effectively to create profits.
• Good Margins: An Operating Margin of 19.55% puts it in the top group of its sector, better than 83% of similar companies. Its Profit Margin of 13.79% is also very good.

This mix of financial stability and high earnings power lowers the danger of a "value trap"—a case where a stock is low-priced because of fundamental business decline.

Considering Growth Path

While strict value investing can concentrate on companies without growth, current versions look for "value with growth"—companies that are priced low but still growing. Adtalem’s Growth score of 6 shows a reasonable path. The company has shown good past results, with Earnings Per Share (EPS) increasing at an average yearly rate of almost 24% over recent years and Revenue growing over 11% yearly. For the future, analysts project EPS growth to keep going at a sound rate of over 17% yearly. This expected growth, combined with its low price, leads to a good PEG ratio, which modifies the P/E for growth. For an investor, this means the low price is not because of no growth outlook, adding another aspect of possible gain.

Final Thoughts and Next Steps

Adtalem Global Education shows a picture that matches several important parts of value investing: it is priced low relative to the market and its own earnings outlook, it runs a profitable business with high capital returns, and it keeps a financially stable balance sheet, all while showing a good growth picture. This combination of elements indicates the stock may be priced too low by the wider market.

For investors wanting to use this strict method to locate other possible options, the "Decent Value" search that found ATGE can be a helpful beginning. You can find more stocks that fit similar standards for good price along with good fundamentals via this link.

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Disclaimer: This article is for information only and is not financial advice, a suggestion to buy or sell any security, or a support of any investment plan. The review uses data and scores from ChartMill, and investors should do their own complete research and think about their personal financial situation and risk comfort before making any investment choices.