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Why IDP Education shares are underrated and overachieving

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.

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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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