Over the past six months, Laureate Education has been a great trade, beating the S&P 500 by 27.9%. Its stock price has climbed to $27.95, representing a healthy 39.5% increase. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy Laureate Education, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Laureate Education Not Exciting?

Despite the momentum, we're swiping left on Laureate Education for now. Here are three reasons why LAUR doesn't excite us and a stock we'd rather own.

1. Weak Growth in Enrolled Students Points to Soft Demand

Revenue growth can be broken down into changes in price and volume (for companies like Laureate Education, our preferred volume metric is enrolled students). While both are important, the latter is the most critical to analyze because prices have a ceiling.

Laureate Education’s enrolled students came in at 472,100 in the latest quarter, and over the last two years, averaged 5.3% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Laureate Education, its EPS declined by 2.9% annually over the last five years while its revenue grew by 6.6%. This tells us the company became less profitable on a per-share basis as it expanded.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Laureate Education historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.3%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

Final Judgment

Laureate Education isn’t a terrible business, but it isn’t one of our picks. With its shares topping the market in recent months, the stock trades at 16.3× forward P/E (or $27.95 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.

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