The S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is significantly weaker in early afternoon trade, down around 1%. Stocks such as Australia and New Zealand Banking Group (ASX: ANZ) and Fortescue Metals Group Limited (ASX: FMG) are down 1.2% and 1.8% respectively.
However, this pales into insignificance by comparison to the plunge in Navitas Limited (ASX: NVT). The shares in the domestic and international education service provider closed yesterday at $7.04 and today traded down $2.61 or 37% at the lowest point. The shares are currently down 32.5%.
The reason for the falling share price:
From early 2016, Macquarie University intends to establish its own college to offer its pathway programs from school to university. This brings to an end an 18-year association with Navitas.
Group CEO Rod Jones described the loss of this contract as, "disappointing and will likely result in a one-off decline in growth in University Programs earnings which will impact the second half of FY2016 and the first half of FY2017."
Other stocks in the education provider sector:
Vocation Ltd (ASX: VET) listed in early December last year and also provides vocational education and training. Its shares have performed well since recently acquiring a national education and training provider called Real Institute. While the shares are currently down 3%, they have risen around 90% since listing. This year SEEK Limited (ASX: SEK) intends to float the business named IDP Education. Seek is also trading down nearly 3% today.
Now What:
Late last year, consultancy firm Deloitte identified six "super sectors" (including international education) that will grow faster than the rest of the global economy, as Australia has unique advantages in almost all of them.
In my opinion, Navitas is in the right sector and remains a good investment for medium-to-long term investors. The announcement today highlights the perils of being overly reliant on large contracts and investing in stocks priced for perfection.
On this latter point, full credit should go to my fellow writer Tim McArthur, who described Navitas as being vastly overvalued only days ago. Readers would be well advised to target an undervalued stock with higher dividends and growth than Navitas…
Higher returns may be achieved by a stock unearthed by our Top Motley fool analysts.
This stock has been nominated as their No 1 pick for 2014 and could be on the cusp of significant growth and that all-important fully franked dividend yield ……
