Why this Beat Up Stock Could Appreciate 200% Over the Next 6-12 Months

Over the past several months, Legacy Education (OTCQB: LEAI) has free-fallen to 50 cents from $1.35, its 52-week high reached on April 20, 2015. Three things happened to cause the precipitous drop in the stock price:

  1. The company announced first quarter revenue was down from $26.6 million to $21.7 million
  2. The company announced the resignation of its CFO
  3. The company reported that someone in their accounts payable department allegedly defrauded the company of $1.3 million

As a company that recently went public, the new management team conducted an audit and discovered that someone in accounts payable was overstating expenses related to advertising and marketing in order to allegedly steal from the company.

While we cannot whitewash the alleged corruption among certain person or persons in accounts payable, we do know that their reported revenue is accurate and that there will be no restatement of their financials required. The Company also appointed a new interim-CFO in June.

The Company also shows debt on its balance sheet which some investors may find confusing.  The debt is actually deferred revenue, but must be counted as debt until the students complete their course work or their contract terms expire. Due to a change in how the Company recognizes this type of revenue, the year-over-year GAAP revenue figures were down for the quarter. But as the Company noted in their first quarter filings and earnings release, on a cash basis year-over-year sales were stable.

Despite the seemingly bad news, if we consider the fundamentals of the Company and its 20-year history, we see a different picture.  We see a company that has trained nearly one million people in various aspects of financial education. Much of their material is based on the best-selling book, Rich Dad, Poor Dad.  On a 12-month trailing basis, the Company has reported $91.7 million in revenue and $2.0 in net income. The stock is trading at a $10 million market cap with sales that are 9x its market cap.  It is trading only 4.3x its 12-month trailing earnings. Legacy’s comps, see below, trade at 12x-24x earnings.  If Legacy trades even at the bottom range of the peer group, the stock would trade at over $2.00 per share.  The stock is also trading at only 0.2x trailing 12 month revenue in an industry that trades 1.6x sales.

Company Name Ticker Share Price Market Cap P/E(ttm) P/S(ttm)
DeVry Education Group Inc DV $31.86 $2030.12M 14.7x 1.1x
Grand Canyon Education Inc LOPE $42.78 $2013.88M 16.9x 2.8x
Apollo Education Group Inc APOL $16.47 $1773.05M 18.0x 0.6x
Capella Education Co CPLA $52.83 $645.17M 16.9x 1.5x
GP Strategies Corp GPX $31.45 $540.43M 21.6x 3.6x
Strayer Education Inc STRA $47.06 $516.42M 11.7x 1.2x
American Public Education Inc APEI $24.08 $412.89M 10.7x 1.2x
Franklin Covey Co FC $19.35 $326.23M 19.8x 1.6x
Rosetta Stone Inc RST $6.65 $143.71M 22.6x 0.6x
Creative Learning Corp CLCN $1.00 $11.96M 24.7x 1.7x
median     $528.42M 17.4x 1.4x
average     $841.39M 17.7x 1.6x
Legacy Education Alliance Inc LEAI $0.69 $13.8M 6.8x 0.2x

As of May 22, 2014
source: ThomsonReuters, company filings

The potential upside on this stock at current levels is significant. Learn more by visiting our LEAI page today.

Disclosure: The information contained herein is not intended to be used as the basis for investment decisions and should not be construed as advice intended to meet the particular investment needs of any investor. The information contained herein is not a representation or warranty and is not an offer or solicitation of an offer to buy or sell any security. To the fullest extent of the law, RedChip Companies, Inc., our specialists, advisors, and partners will not be liable to any person or entity for the quality, accuracy, completeness, reliability or timeliness of the information provided, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information provided to any person or entity (including but not limited to lost profits, loss of opportunities, trading losses and damages that may result from any inaccuracy or incompleteness of this information).

Legacy Education Alliance (LEAI) is a client of RedChip Companies, Inc. LEAI agreed to pay RedChip Companies, Inc. a monthly cash fee for twelve (12) months of RedChip investor awareness services.

Investor awareness services and programs are designed to help small-cap companies communicate their investment characteristics. RedChip investor awareness services include the preparation of a research profile(s), multimedia marketing, and other awareness services.

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