Top fundie says this heavily shorted ASX 200 stock is 'cheaper than it's worth'

Learn here about an ASX 200 stock this Airlie fund manager likes.

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The S&P/ASX 200 Index (ASX: XJO) stock Idp Education Ltd (ASX: IEL) has been picked as an opportunity.

IDP Education offers a number of services including student placement and international English language testing.

Airlie Funds Management is an outfit that focuses on ASX shares, and Emma Fisher is one of the portfolio managers. Fisher recently spoke to the Australian Financial Review.

IDP Education is a contrarian ASX 200 stock pick

Fisher suggests that investing doesn't need to be about having an epiphany about which trend to follow. She said:

It's not lightning-bolt moments in the shower where you realise that some secular
megatrend is going to make you all this money. It's about the nuts and bolts – talking to companies, having an open mind, reading widely.

The balance sheet is a key focus for the investment team and when it comes to value, she said "the lower the share price, the lower the risk".

Airlie has been buying IDP Education shares following its almost 60% drop from November 2021. A problem has been the company's key markets of Australia, Canada and the UK have "turned off the taps to immigration".

The fund manager started buying at $19 and it has dropped to below $16 at the time of writing. Fisher suggested the IDP Education share price could fall further in the short-term – which it has today – but the fund manager is confident the company can succeed even though it's one of the most shorted stocks on the ASX.

Fisher said:

They've got the balance sheet, they're the leading player, it's not a capital-intensive industry, and they don't need much cash to grow, so they're going to survive a downturn.

You can kind of lean into that fear that the cycle is throwing off, and find a good business that we think is cheaper than it's worth.

How cheap is the ASX 200 stock?

There are a few different ways to judge a business, so let's look at the company's earnings multiple. The price/earnings (P/E) ratio is one of the easiest ways to judge a business.

The forecast on Commsec suggests the company's earnings per share (EPS) can grow in FY24, FY25 and FY26. The falling valuation, as we can see on the chart below, makes the stock look cheaper and cheaper.

On the current estimates, the IDP Education share price is valued at 27x FY24's estimated earnings, 24x FY25's estimated earnings and 21x FY26's estimated earnings.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Idp Education. The Motley Fool Australia has recommended Idp Education. 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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