What: Leading university pathways educator Navitas Limited (ASX: NVT) has fallen around 4% today after reporting a solid set of interim results. The group achieved a 14% increase in revenue to $480.5 million and a 12% increase in net profit after tax to $40.4 million, which equated to an 11% increase in earnings per share (excluding goodwill impairment) of 10.7 cents per share (cps). Shareholders will also receive a fully franked interim dividend of 9.4 cps which is in line with the prior corresponding period.
So What: The solid, double-digit results are an important milestone for Navitas after the high-flying business shocked the market in July last year when it announced that a long-term agreement with Macquarie University to provide pathway programs would be ending in 2016. The announcement sent the share price tumbling 30% to around $5 – a level it remains trading near today.
Now What: Today’s results go some way to re-affirming investors’ confidence in the company, however, even at $5 a share the stock is still arguably priced for perfection with high growth required to support the lofty price-to-earnings (PE) multiple. Based on the low end of management’s full year guidance for earnings before interest, tax, depreciation and amortisation (EBITDA) of $162 million, the stock is trading on a PE of 21x.
Navitas remains a high-quality business and would be a welcome addition to many long-term portfolios if it was available at an appealing price. Given the high multiple the company trades on relative to the low-to-mid-double digit earnings growth profile, conservative investors may be best off leaving this one on their watch list for the time being.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned.