Unfortunately for its shareholders, the Navitas Limited (ASX: NVT) share price has plunged a massive 16% to $4.16 today after the education company provided an update on the Adult Migrant English Program (AMEP) tender process.
The release reveals that the Commonwealth Department of Education and Training has recommended Navitas as a preferred tenderer for a reduced number of contract regions from July 1 2017 onwards.
Based on the assumption that the Department of Education and Training successfully concludes formal contracts with all of its preferred tenderers, Navitas estimates that the reduction in AMEP delivery centres will impact its Professional and English Programs segment's EBITDA by between $12 million and $14 million from FY 2018 onwards.
Considering the company recently posted a disappointing 8% drop in half-year EBITDA, this news couldn't have come at a worse time.
As a result I think a turnaround of fortunes in FY 2018 seems very unlikely and I can't say I'm surprised to see its share price tumble today.
Should you buy the dip?
With its shares changing hands at just over 18x trailing earnings, I believe they are still a little on the expensive side. Especially if this news does in fact lead to such a drop in earnings in FY 2018.
Because of this I would suggest investors stay clear of Navitas for the time being and focus elsewhere in the market. I expect investments in companies such as G8 Education Ltd (ASX: GEM) and Think Childcare Ltd (ASX: TNK) could prove to be far better options.
