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:
- The company announced first quarter revenue was down from $26.6 million to $21.7 million
- The company announced the resignation of its CFO
- 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|
|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.
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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.