IDP Education Ltd (ASX: IEL) shares were among the biggest movers in the final week of earnings season.
The company rocketed 30% last Thursday after delivering its FY25 results, which appeared to exceed market expectations.
As of 30 June, IDP Education took the title of the worst-performing S&P/ASX All Ordinaries Index (ASX: XAO) stock over the prior 12 months.
The company tumbled 76% to close at $3.67 on 30 June.
The company is also regularly among the most shorted shares on the ASX.
Safe to say, it was not a good year for shareholders.
However, since then, IDP Education shares have rebounded more than 50%. The majority of that rebound came last week when the company unveiled its FY25 results.
Those who saw value in the company and bought the dip in June have done very well for themselves so far.
The company remains materially down from its peak. Last Friday, IDP Education shares closed at $5.62. A year ago, they were trading at nearly $16. And zooming further out, the company reached an all-time high of nearly $40 back in 2021.
ASX investors eyeing IDP Education's recent comeback may be wondering if the company has further to run and can return to former levels?
Let's find out.
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Expert's take on IDP Education's result
As expected, IDP Education posted a significant decline in nearly all metrics from FY24. Investors reviewing this and seeing the company's share price surge 30% may have found it difficult to reconcile opposing signals.
On 29 August, Macquarie Group Ltd (ASX: MQG) released a research note, outlining which parts of the result had impressed investors so much to generate such a strong share price reaction.
The broker said that, while FY25 adjusted EBIT of $119 million was a 50% decline from FY24, it had fallen in the midpoint of previously issued guidance. Therefore, this was expected by investors and already reflected in the share price.
However, the broker noted that FY26 adjusted EBIT guidance of $115-$125 million, with the midpoint flat on FY25, was "ahead of Visible Alpha ($115 million), benefiting from the announced A$25 million cost-out program".
The cost out program refers to the company's plans to extract $25 million, ahead of prior estimates of $15 million to capture additional productivity and revenue benefits.
Macquarie also described FY25 student placement pricing as a highlight. Prices lifted 15% year over year, driven by higher tuition fees and negotiated commission rates.
The broker also noted that FY25 cash conversion of 143% was an improvement from 80% in FY24.
Does Macquarie rate IDP Education a buy?
Despite remaining down materially from its peak, and its FY25 result showing some bright spots, Macquarie downgraded IDP Education shares from outperform to neutral.
This means that after rallying 50% since 30 June, the broker now considers the stock fairly valued.
When issuing this re-rating, Macquarie said:
Downgrade to Neutral from Outperform. We view the long-term thesis to be intact, as we expect foreign student demand will return to key western markets. However, we see risks to near-term EPS due to weak market volumes and IEL's ability to take market share.
Macquarie has a price target of $6 on the stock, suggesting it may be slightly higher in 12 months.
