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Are G8 Education Limited shares in the buy zone?

Today’s trading day had a soft start as uncertainty about the slowing global economy continued. But this hasn’t stopped the G8 Education Ltd (ASX: GEM) share price from edging higher.

At the time of writing, the education and childcare company’s shares have climbed by 2.76% to $2.98.

Is G8 Education Ltd a buy?

Year to date, the G8 Education Limited share price is up 12.26%.

In consensus data published on 20 March 2019, G8 Education was classified as a strong buy with 8 analysts classifying the company as a buy, 3 analysts classifying the company as a hold and 2 analysts classifying the company as a sell.

Still trading below its 52-week high of $3.63, this indicates the G8 Education share price could be good value.

With a dividend yield of 6.21% and a price-to-earnings ratio of 18.3, this also looks good for investors searching for dividends and strong share price growth.

Why are brokers bullish on G8 Education?

In early-March, G8 Education’s CEO, Gary Carroll announced the company would be opening 15 to 20 new childcare centres annually over the next few years.

Along with the new centres, about $25 million per year for the next two years is going to be spent refurbishing 100 of the company’s existing centres.

Add this to the company’s established network of 502 childcare centres, and G8 Education looks set to continue as the largest childcare centre operator in Australia for the foreseeable future.

The big question with the company’s expansion and refurbishing plans over the coming years is — how is this going to impact their free cash flow and earnings?

Foolish takeaway

With the amount of capital expenditure and debt that will be required for G8 Education to continue expanding over the coming years, this could affect the company’s earnings in the short-term.

The company’s dividend yield relative to its scale is also a consideration if dividends are an important part of your investing strategy.  

Based on G8 Education’s continued expansion plans over the next few years, the company looks to be some time away from maturing.

If you’re going to buy G8 Education Limited shares, I’d make this a long-term play keeping in mind that companies in the early education and childcare services industry have a lot of fixed expenses to cover.

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Motley Fool contributor Nicola Smith has no position in any of the 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 Scott Phillips.

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