While the broader market has struggled with the S&P 500 down 1.4% since September 2024, Laureate Education has surged ahead as its stock price has climbed by 24.9% to $20.74 per share. This performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Laureate Education, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
We’re happy investors have made money, but we're cautious about Laureate Education. Here are three reasons why there are better opportunities than LAUR and a stock we'd rather own.
Why Is Laureate Education Not Exciting?
Founded in 1998 by Douglas L. Becker and based in Miami, Laureate Education (NASDAQ:LAUR) is a global network of higher education institutions.
1. Weak Growth in Enrolled Students Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like Laureate Education, our preferred volume metric is enrolled students). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Laureate Education’s enrolled students came in at 472,000 in the latest quarter, and over the last two years, averaged 6.2% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Laureate Education’s revenue to stall, a deceleration versus its 12.3% annualized growth for the past two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Laureate Education historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
Final Judgment
Laureate Education isn’t a terrible business, but it doesn’t pass our quality test. With its shares beating the market recently, the stock trades at 14.8× forward price-to-earnings (or $20.74 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at the most dominant software business in the world.
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