For investors looking for chances where a company's market price seems separate from its basic financial condition, a systematic value investing method can be a useful rule. This strategy, made famous by Benjamin Graham and Warren Buffett, focuses on finding stocks selling for less than their calculated true worth. The aim is to buy these discounted securities with an adequate "margin of safety," creating a cushion against mistakes in calculation and market swings. A useful method to use this tactic is by searching for companies that show good fundamental condition and earnings but are available at a lower price, hinting the market might be missing their actual value.
One stock that recently appeared from this "Decent Value" search is Adtalem Global Education Inc (NYSE:ATGE), a supplier of post-secondary education concentrating on healthcare careers. The search looks for companies with a good valuation rating while keeping acceptable results in earnings, financial condition, and expansion, a mix that fits the main ideas of value investing. A good valuation rating implies the stock is priced well compared to its financial numbers, while the other ratings show the business is basically healthy, lowering the danger of a "value trap" where a low-priced stock is inexpensive for a bad reason.
Valuation: An Interesting Starting Price
The base of any value investment is a good price. Adtalem's valuation numbers show an interesting argument, giving it a high rating in this area. The stock sells at a Price-to-Earnings (P/E) ratio of 13.30, which is lower than both the wider S&P 500 average (about 27.67) and most of its competitors in the Diversified Consumer Services field. This lower price is more clear when looking ahead.
- Forward P/E Ratio: 11.25, lower priced than 84% of industry rivals.
- Price/Free Cash Flow: Placed lower priced than almost 90% of the industry, showing good cash creation relative to its market price.
- PEG Ratio: A small PEG ratio, which includes earnings expansion forecasts, also implies the stock is not just low-priced but low-priced even when its expansion outlook is reviewed.
For a value investor, these numbers are the first sign. They show the market is pricing ATGE cautiously, possibly making a chance if the company's good basics continue.
Financial Condition: A Steady Base
A low price is not important if the company's balance sheet is weak. Value investing needs a margin of safety, and a financially fit company gives that cushion. Adtalem's financial condition rating is solid, mainly because of very good solvency numbers.
- Good Solvency: The company has an Altman-Z score of 4.51, showing a very small short-term danger of financial trouble and doing better than 87% of its industry. Its Debt-to-Equity ratio of 0.37 shows a sensible use of debt funding.
- Very Good Debt Coverage: Maybe most notable is the Debt to Free Cash Flow (FCF) ratio of 1.37. This means Adtalem could pay off all its debt with just more than a year's worth of its present FCF, a level of coverage that does better than 86% of industry peers.
- Liquidity Point: It is good to note a smaller Current and Quick Ratio (0.68), which often shows possible short-term cash concerns. However, the basic analysis report explains this by pointing out the company's very good solvency and earnings. Here, these small liquidity ratios might be more connected to the particular business model and schedule of cash movements rather than a close financial danger, especially with the good total condition profile.
Earnings: Good Quality at a Lower Price
Value investing is not only about buying low-priced stocks; it is about buying sound companies at a low price. Adtalem's high earnings rating confirms it is a basically profitable business. The company creates good returns on the capital it uses.
- Good Returns: The Return on Invested Capital (ROIC) of 13.77% is with the best in its industry, doing better than 91% of peers. This shows effective use of capital to create profits.
- Good Margins: An Operating Margin of 19.55% and a Profit Margin of 13.41% are both higher than over 82% of the industry, showing price strength and operational effectiveness.
- Steady Cash Creation: The company has been profitable and created positive operating cash flow in each of the last five years, a history that builds its trust.
This steady earnings is key. It implies the company's competitive place is good and that its profits are of high quality, supporting the view that the present valuation may not show this basic strength.
Expansion: The Driver for Value Achievement
While simple value stocks can sometimes be still, the addition of an expansion part helps find companies where true worth may be rising. Adtalem shows a fair expansion profile. Past results have been good, with Revenue expanding at over 11% each year and Earnings Per Share (EPS) rising nearly 30% in the last year. Looking forward, experts expect EPS expansion to keep going at a sound rate of over 17% each year. This forward expansion, when paired with its low price, is what makes the interesting PEG ratio noted earlier. For the value investor, this expansion part can be the reason that helps narrow the difference between market price and true worth over time.
Conclusion
Adtalem Global Education shows a profile that fits main value investing ideas: it is priced at a notable discount to the market and its industry, yet it is supported by a base of good earnings, solid financial condition, and sensible expansion forecasts. This mix tries to give the desired "margin of safety", the stock seems low-priced not because the business is failing, but possibly because the market has not completely seen its financial strength and earnings possibility. Naturally, investors must think about field-specific dangers, like rule shifts in education, but from a simple basic search view, ATGE shows the kind of chance value methods try to find.
Interested in finding more companies that fit this "Decent Value" profile? You can use the same search that found Adtalem to look for other possible chances. Click here to view the search and its present results.
For a complete look at all the basic parts behind Adtalem's ratings, you can see the full ChartMill Fundamental Analysis Report for ATGE.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or a deal to buy or sell any security. The study uses data and a search method, which has limits. Investors should do their own complete study and think about their personal money situation and risk comfort before making any investment choices. Past results do not show future outcomes.
