The IDP Education Ltd (ASX: IEL) share price is nearing an all-time high with shares up more than 87% in 2019. Could they reach $20 for the first time?
About IDP
IDP Education is an education organisation that operates internationally, offering student placements in Australia, New Zealand, the US, UK, Ireland and Canada.
Their services involve assistance to choose and find courses, find health cover and complete visa applications.
IDP is also the co-owner of the International English Language Testing System, or IELTS, which is the international standardised test of English language proficiency.
All-Time High
IDP shares recorded their highest share price earlier this year at $18.91 and have been hovering around $18 to $19 ever since.
Shares only sit around 3.4% below $19 and 8.8% off $20 today. Given that the shares are up 87% year-to-date and 25% in just the last three months, it’s not hard to imagine IDP reaching $20 per share soon.
What’s Causing The Growth?
The share price growth reflects the high revenue growth IDP is currently generating.
Their 1H19 report revealed revenue growth of 26% and EBITDA growth of 33%. The video below explains what EBITDA is.
IDP has managed this growth with minimal debt and they maintain a return on equity (ROE) of more than 50%, meaning they can turn every dollar of shareholder equity into $1.50. That’s an impressive value-add.
I see IDP as a very strong business, but I’m unsure about the valuation.
Valuation
With a consensus earnings per share of 33.8 cents for 2020 and a share price of $18.38, shares trade at a forward price-earnings (PE) ratio of 54.4 times, and if the share price were to reach $20 the forward PE would be nearly 60 times.
While IDP shares look like they could reach $20, I wouldn’t be buying at this price. The current share price seems to rely on very high growth rates going forward, so it’s likely that a disappointing annual report would severely impact the share price. The risks to the downside look too high to invest at today’s price.
I’d rather invest in one of the businesses mentioned in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
