While the broader market has struggled with the S&P 500 down 4.1% since September 2024, Perdoceo Education has surged ahead as its stock price has climbed by 13.5% to $25.25 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Perdoceo 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.
We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons why PRDO doesn't excite us and a stock we'd rather own.
Why Is Perdoceo Education Not Exciting?
Formerly known as Career Education Corporation, Perdoceo Education (NASDAQ: PRDO) is an educational services company that specializes in postsecondary education.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Perdoceo Education’s sales grew at a weak 1.7% compounded annual growth rate over the last five years. This was below our standards. 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Perdoceo Education’s revenue to stall, close to its 1% annualized declines for the past two years. This projection doesn't excite us and suggests its newer products and services will not accelerate its top-line performance yet.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Perdoceo Education’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Perdoceo Education’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 10.7× forward price-to-earnings (or $25.25 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.
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