Rating Update: Stock Rating F-Lowest (10/9/19)-Aspen Group Inc (ASPU).

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BUSINESS

Aspen Group, Inc. provides online higher education services in the United States. The company offers certificate programs; and associate, bachelor’s, master’s, and doctoral degree programs in a range of areas, including nursing, education, business, technology, management, health sciences, and professional and extended studies. As of April 30, 2018, it had 7,057 degree-seeking students enrolled. The company was founded in 1987 and is headquartered in New York, New York.
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INVESTMENT RATING

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ASPU’s future returns on capital are forecasted to fall short of the cost of capital. Accordingly, the company is expected to be a major Value Eraser.

Aspen has a current Value Trend Rating of F (Lowest Rating).
The Value Trend Rating reflects inconsistent signals from PTR’s two proprietary measures of a stock’s attractiveness. Aspen has a neutral Power Rating of 42 but a very low Appreciation Score of 10, resulting in the Lowest Value Trend Rating.

Aspen’s stock is selling significantly above targeted value. The current stock price of $5.00 compares to targeted value 12 months forward of $2.
Aspen’s very low appreciation potential results in an appreciation score of 10 (90% of the universe has greater appreciation potential.)
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Aspen has a Power Rating of 42. (This neutral Power Rating indicates that Aspen’s chances of enjoying favorable investment performance over the near to intermediate term are only average.)
Factors contributing to this neutral Power Rating include: is in a slightly weakened position current; and recent price action has been slightly unfavorable. An offsetting factor is the recent trend in Aspen’s earnings estimates has been favorable.

INVESTMENT PROFILE

Aspen’s financial strength is below average. Financial strength rating is 31.
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Relative to the S&P 500 Composite, Aspen Group Inc has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that ASPU is normal risk. High expected growth is a positive for Aspen. Relative weaknesses include: low historical profitability, low financial strength, and low historical growth. Aspen’s valuation is high: low dividend yield, high P/E ratio, and moderate price/book ratio. ASPU has unusually low market capitalization.

CURRENT SIGNALS

Aspen’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; and falling leverage.

Aspen’s current technical position is moderately positive. The stock price is in a 2.8 month up move. The stock has appreciated 43.4% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.

ALERTS

Significant negative changes in investment behavior have recently occurred for Aspen Group Inc (NASDAQ: ASPU): the stock fell on very heavy volume.
The stock is currently rated F.
Aspen Group Inc (NASDAQ: ASPU) stock closed at $0.94 on 10/9/19 after a major decline of -10.3%. Moreover, this decline was accompanied by exceptionally high trading volume at 204% of normal. Relative to the market the stock has been weak over the last nine months and has declined -2.0% during the last week.

CASH FLOW

In 2019, Aspen experienced a very significant reduction in cash of -$4.84 million (-33%). Sources of cash were much lower than uses. Cash consumed from 2019 EBITDA totaled -$6.44 million. Non-operating uses consumed -$0.22 million (+3% of EBITDA). In 2019, there were no cash taxes paid. Re-investment in the business amounted to -$7.38 million (+115% of EBITDA). On a net basis, debt investors provided +$7.20 million (-112% of EBITDA) while equity investors furnished +$2.00 million (-31% of EBITDA).
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Aspen’s Non-operating Income, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Aspen Group Inc Peer Group. In most years, Aspen was in the top quartile. Currently, Aspen is upper quartile at +3% of EBITDA (-$0.22 million).

Aspen’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Aspen Group Inc Peer Group as well. In most years, Aspen was in the second quartile. Currently, Aspen is slightly above median at 0% of EBITDA ( $0.00 million).

Aspen’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Aspen Group Inc Peer Group. In most years, Aspen was in the top quartile. Currently, Aspen is slightly above median at +115% of EBITDA (-$7.38 million).

Aspen’s Debt Investors, %EBITDA has experienced a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Aspen Group Inc Peer Group. In most years, Aspen was in the top quartile. Currently, Aspen is lower quartile at -112% of EBITDA (+$7.20 million).

Aspen’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Aspen Group Inc Peer Group. In most years, Aspen was in the top quartile. Currently, Aspen is upper quartile at -31% of EBITDA (+$2.00 million).

Aspen’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Aspen Group Inc Peer Group. In most years, Aspen was in the top quartile. Currently, Aspen is upper quartile at +75% of EBITDA (-$4.84 million).
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Aspen’s Cash, %Revenue has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Aspen Group Inc Peer Group. In most years, Aspen was in the lower quartile. Currently, Aspen is lower quartile at +29%.

PROFITABILITY

Aspen Group’s operating performance since 2013 is unavailable.
The productivity of Aspen Group’s assets declined over the full period 2010-2019: asset turnover has suffered a volatile overall downtrend even as it experienced a very sharp recovery after the 2017 low.
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Aspen Group’s return on equity is substantially below median (-34.3%) for the four quarters ended July, 2019.
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Operating performance (pretax return on assets) is substantially below median (-16.9%) reflecting asset turnover that is above median (0.74X) and below median pretax margin (-22.8%).
Tax “keep” rate (income tax management) is at the upper quartile (100.4%) resulting in after tax return on assets that is substantially below median.
Financial leverage (leverage) is below median (2.02X).

GROWTH RATES

There are no significant differences between Aspen Group’s longer term growth and growth in recent years.
Aspen Group’s historical income statement and balance sheet growth are not available.

Annual revenue growth has been 95.9% per year.

Total asset growth has been 115.9% per year.

Annual E.P.S. growth is not available.

Equity growth has been 125.9% per year.

Aspen Group’s consensus growth rate forecast (average of Wall Street analysts) is 40.0% — substantially below the average of the historical growth measures.
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Relative to the Aspen Group Inc Peer Group, Aspen’s historical growth measures are generally top quartile. Revenue growth (95.9%) has been upper quartile. Total asset growth (115.9%) has been upper quartile. Equity growth (125.9%) has been upper quartile. E.P.S. growth is unavailable.

Consistent with this pattern, consensus growth forecast (40.0%) is also at the upper quartile.
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PRICE HISTORY

Over the full time period, Aspen Group’s stock price performance has been variable and significantly below market. Between March, 2012 and October, 2019, Aspen Group’s stock price fell -88%; relative to the market, this was a -94% loss. Significant price moves during the period: 1) December, 2017 – June, 2019: -57%; 2) January, 2016 – December, 2017: +509%; 3) April, 2015 – September, 2015: -51%; and 4) August, 2012 – February, 2014: -97%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of -23.7% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through September, 2019 of -23.7% is below median relative to Aspen Group Inc Peer Group.

Current 5-year total return performance of 12.5% is slightly above median relative to the S&P 500 Composite.
Through September, 2019, with slightly above median current 5-year total return of 12.5% relative to S&P 500 Composite, Aspen’s total return performance is substantially above median relative to Aspen Group Inc Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, ASPU’s overall valuation is quite high. The highest factor, the ratio of enterprise value/assets, is above median. Price/equity ratio is slightly above median. Ratio of enterprise value/revenue is slightly below median. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
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Aspen has a major value gap compared to the median. For ASPU to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 2.82X to 6.09X. If ASPU’s ratio of enterprise value/revenue were to rise to 6.09X, its stock price would be higher by $6 to $11.
For ASPU to achieve upper quartile valuation relative to the Aspen Group Inc Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 2.82X to 8.40X. If ASPU’s ratio of enterprise value/revenue were to rise to 8.40X, its stock price would increase by $11 from the current level of $5.00.

VALUE TARGETS

ASPU’s future returns on capital are forecasted to fall short of the cost of capital. Accordingly, the company is expected to be a major Value Eraser.
Aspen Group’s current Price Target of $2 represents a -55% change from the current price of $5.00.
Aspen’s very low appreciation potential results in an appreciation score of 10 (90% of the universe has greater appreciation potential.)
With this low Appreciation Score of 10, the neutral Power Rating of 42 results in an Value Trend Rating of F.
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Aspen Group’s current Price Target is $2 (-97% from the 2019 Target of $90 and -55% from the 10/09/19 price of $5.00). This dramatic fall in the Target is the result of a +90% increase in the equity base and a -99% decrease in the price/equity multiple. Each of the Value Drivers contributed to this decline in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the multiple. The forecasted decline in growth also has a very large negative impact as did the increase in cost of equity.
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PTR’s return on equity forecast is -1.2% — significantly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2019. The current forecast is well below the 2018 low of 4%.

PTR’s growth forecast is 41.0% — significantly below our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2014 and 2019. The current forecast is significantly above the 2014 low of 4%.

PTR’s cost of equity forecast is 9.2% — in line with recent levels. Forecasted cost of equity suffered a dramatic, steady increase between 2014 and 2019. The current forecast is above the 2014 low of 4.2%.
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At Aspen Group’s current price of $5.00, investors are placing a positive value of $4 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 62.0% per year, and a return on equity of 59.2% versus a cost of equity of 9.2%.
PTR’s 2021 Price Target of $2 is based on these forecasts and reflects an estimated value of existing assets of $0 and a value of future investments of $2.

About John Lafferty 49646 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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