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Why the G8 Education Ltd share price has been crushed today

childcare education

Unfortunately for its shareholders, the G8 Education Ltd (ASX: GEM) share price has been amongst the worst performers on the market today.

At the time of writing the leading childcare operator’s shares are down approximately 11% to $3.32, wiping out the strong gains they have made in the last few months.

What happened?

Today’s decline appears to relate to a research note out of Canaccord Genuity which reveals that its analysts have concerns over an oversupply of childcare centres.

According to the note there were 113 new child care centres opened in Australia during the March quarter. Even if this growth moderates, its analysts believe upwards of 350 new childcare centres could be opened this year.

This would equate to a 5% year-on-year increase in supply, potentially leading to an imbalance in supply and demand.

But worst of all, Canaccord Genuity believes that almost half of the new childcare centres opened in the first quarter are within three kilometres of G8 Education centres.

In light of this the broker has downgraded its shares to a hold rating with a $3.80 price target.

Should you buy the dip?

Whilst my preference in the industry remains Think Childcare Ltd (ASX: TNK), at the current share price I think G8 Education could prove to be great value for money.

At under 15x trailing earnings and providing a trailing fully franked 7% dividend, I think G8 Education offers investors a good risk/reward. Especially with its potential expansion into China.

Where to invest $1,000 right now

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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