The stock of Aspen Group (NAS:ASPU, 30-year Financials) is believed to be possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $6.3 per share and the market cap of $157.2 million, Aspen Group stock shows every sign of being possible value trap. GF Value for Aspen Group is shown in the chart below.
The reason we think that Aspen Group stock might be a value trap is because its Piotroski F-score is only 3, out of the total of 9. Such a low Piotroski F-score indicates the company is getting worse in multiple aspects in the areas of profitability, funding and efficiency. In this case, investors should look beyond the low valuation of the company and make sure it has no long-term risks. To learn more about how the Piotroski F-score measures the business trend of a company, please go here.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Aspen Group has a cash-to-debt ratio of 0.83, which is in the middle range of the companies in Education industry. GuruFocus ranks the overall financial strength of Aspen Group at 6 out of 10, which indicates that the financial strength of Aspen Group is fair. This is the debt and cash of Aspen Group over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Aspen Group has been profitable 0 years over the past 10 years. During the past 12 months, the company had revenues of $62.8 million and loss of $0.37 a share. Its operating margin of -6.06% worse than 76% of the companies in Education industry. Overall, GuruFocus ranks Aspen Group's profitability as poor. This is the revenue and net income of Aspen Group over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Aspen Group is 33.1%, which ranks better than 91% of the companies in Education industry. The 3-year average EBITDA growth is -71%, which ranks in the bottom 10% of the companies in Education industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Aspen Group's return on invested capital is -7.13, and its cost of capital is 8.06. The historical ROIC vs WACC comparison of Aspen Group is shown below:
In summary, Aspen Group (NAS:ASPU, 30-year Financials) stock gives every indication of being possible value trap. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Education industry. To learn more about Aspen Group stock, you can check out its 30-year Financials here.
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