37% higher in 3 months – is the G8 Education share price a buy?

The G8 Education Ltd (ASX: GEM) share price has rocketed to about 37% higher in the last three months – is it a buy?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The G8 Education Ltd (ASX: GEM) share price has rocketed about 37% higher in the last three months, from a low of $1.88 in October 2018 to close at $2.74 on Tuesday.

Amidst the jubilee of the turnaround, I think it is prudent to ask:

Is the G8 Education share price a buy?

The current upbeat sentiment with G8 Education's share price can be summarised with a quote by Warren Buffett:

"Equities will do well over time — you just have to avoid getting excited when other people are getting excited."

I think the excitement with the recent G8 Education share price run may be unsustainable in the near term. Here's why.

The industry-wide oversupply of child care centres has brought about the dilution of the occupancy rate and has contributed to a slide in profit. Until the oversupply is stemmed, profit is likely to be restrained.

Based on past records, G8 Education revealed slower revenue growth from 70% in 2014 to a mere 2.08% in 2017.

G8 Education's earnings per share for the aforementioned period also retreated in growth, from positive growth of 43.17% to negative growth of 10.89%.

In the 2018 half-yearly report, earnings before interest and tax are reported 20% lower against the 2017 half-year report.

With the reporting season just around the corner, you may want to keep an eye on the upcoming earnings to make a further assessment of G8 Education's growth potential.

G8 Education's dividend payout reduced to 4.5c in October 2018 from 10c per half year in Mar 2018. This has caused further discomfort for income investors.

Foolish Takeaway

The G8 Education share price seems attractive at the current level of around $2.75 versus a year ago when it was trading at $4.55. However, with the looming issues such as the oversupply of child care centres and weak earnings, I think you may want to hold your horses.

Meanwhile, I would suggest you take a look at other discretionary shares such as InvoCare Limited (ASX: IVC) or Aristocrat Leisure Limited (ASX: ALL).

Motley Fool contributor Ivan Loh has no position in any of the stocks mentioned. The Motley Fool Australia has recommended InvoCare Limited. 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 Scott Phillips.

More on Share Market News

Investor sitting in front of multiple screens watching share prices
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave the thumbs up to these ASX shares last week. Why are they bullish?

Read more »

Jessica Amir
Investing Strategies

6 ASX shares to buy and hold until the next leap year

These are the stocks to store in the portfolio until the next February 29 rolls around in 2028, according to…

Read more »

A woman ponders a question as she puts money into a piggy bank with a model plane and suitcase nearby.
Share Market News

If I invest $10,000 in Qantas shares, how much passive income will I receive in 2024?

Here's what analysts are predicting from the airline operator.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Broker Notes

These ASX 200 shares could rise 20% to 50%

Big returns could be on the cards according to analysts.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Value Investing

Looking for ASX value shares? Here's 1 I'd buy and 1 I'd avoid!

It's not an easy exercise to identify which stocks are undervalued and which ones are simply terrible. Here's an example…

Read more »

A young girl looks up and balances a pencil on her nose, while thinking about a decision she has to make.

Will I be buying Zip shares now the company has turned a profit?

Is now the right time to buy this BNPL stock -- or not?

Read more »

a man with hands in pockets and a serious look on his face stares out of an office window onto a landscape of highrise office buildings in an urban landscape

1 ASX dividend stock down 55% to buy right now

Here's why I think this beaten-up stock could be an opportunity.

Read more »

Three analysts look at tech options on a wall screen
Share Market News

Here's how the ASX 200 market sectors stacked up this week

ASX tech shares are on fire, leading the 11 market sectors for a third consecutive week.

Read more »