2014 has turned out to be a major disappointment for investors in Navitas Limited (ASX: NVT), with the global education provider seeing its share price fall by 17% since the turn of the year. The key reason for the fall was a 31% drop in profits for the year to June 30, although the company also recently announced a partnership with Florida Atlantic University to establish a pathway programme, which marks its first significant partnership in the U.S. for four years. As a result now could be the right time to buy a slice of the company. Here are three more reasons why this could be the case.
Turnaround potential
Despite profit falling by 31% in the year to June 30, the future could prove to be a whole lot better for Navitas. Indeed, the company is forecast to increase its bottom line by 16.1% per annum over the next two years. Certainly, if it hits these forecasts then profit will still be around 7% below where it was in the year to June 30 2013. However, with the company's share price having adjusted to reflect the lower level of earnings, it could respond favourably to the delivery of strong profit growth moving forward.
An attractive valuation
On the face of it, Navitas' share price looks expensive, with the company having a P/E ratio of 24.5. This is 49% higher than the ASX's P/E of 16.4, which highlights that the market is still pricing the company's shares for growth. However, when the growth potential and current P/E ratio are combined to produce the price to earnings growth (PEG) ratio, it generates a figure of 1.5. This is well below the ASX's PEG ratio of 2 and shows that, while its rating is high, Navitas offers growth potential at a reasonable price.
Income prospects
With a fat, fully franked yield of 4.1%, Navitas should also appeal to income-seeking investors. Furthermore, dividends per share are expected to increase at a rapid rate over the next two years. Indeed, an annual growth rate of 23% is forecast, which (assuming the current share price stays where it is) could mean that Navitas yields as much as 5.3% in 2016. As a result of its income potential, as well as strong growth prospects and attractive valuation, Navitas could prove to be a winning play – especially while sentiment is at a low ebb.
