Why IDP Education shares are underrated and overachieving

The IDP Education Ltd (ASX: IEL) share price hit a new record high on Friday afternoon and is up 100% so far this year – but no one is paying attention.

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The IDP Education Ltd (ASX: IEL) share price has been one of the quiet achievers within the S&P/ASX200 Index (ASX: XJO) so far this year, quietly soaring 100% higher so far this year to $19.69 per share.

However, unlike many of its ASX200 peers, IDP hasn't been making big announcements and isn't a hot ASX growth stock – so what's fuelling its recent capital gains?

Why has the IDP Education share price rocketed higher?

The IDP Education share price climbed 3.09% higher on the ASX on Friday to $19.69 per share having hit a new all-time high of $19.73 just prior to market close.

What is interesting about the Aussie education group is that in terms of market-moving ASX announcements, IDP Education hasn't really had a lot of them in 2019.

Other than a few Change of Director's Interest Notices throughout the last few months, the only price-sensitive announcement made by the IDP Education was its February 2019 half-year earnings.

A strong half-year result saw the IDP share price surge a whopping 18% after reporting a 26% increase in revenue to $304.3 million and a 34% increase in net profit after tax (NPAT) to $40.7 million.

In terms of pure earnings, the company's earnings before interest, tax, depreciation and amortisation (EBITDA) rose 33% versus last year's numbers to $66.8 millon.

The company's big growth areas remain its English Language Testing and Student Placement operations, with segment revenues climbing 19% and 36%, respectively.

IDP Education continues to benefit from a strong presence in Asia, which remains its primary earnings segment and with education climbing as one of Australia's top 3 exports, I don't see why the IDP Education share price won't keep climbing.

Should you buy IDP Education shares?

There are quite a few things to like about IDP Education, including its ability to manage debt and generate significant cash flow from its operations.

However, the company's price-to-earnings (P/E) ratio of 97.75x earnings is a little too steep for me at this stage, particularly given it's not one of the Afterpay Touch Group Ltd (ASX: APT) or Appen Ltd (ASX: APX) types that can capitalise on a growing tech market.

While the IDP Education share price has definitely been an overachiever so far this year, I'd be holding off until the company's full-year results in August before deciding if its lofty valuation is justified.

Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. 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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