G8 Education Ltd (ASX: GEM) shares have pulled back nearly 40% from their 2014 high of $5.63 to today's price of $3.22, bumping the trailing yield up to 4.2% and the forecast forward yield up to over 7.5% this year and 9% next year!
In addition, net profit nearly doubled last financial year and is expected to jump another 70% this year, however this growth has come with the issuance of new shares which have reduced the positive impact on the earnings per share a little. The question must be asked, is G8 an absolute bargain at today's price?
Bargain Basement
G8's expansion by acquisition strategy has been extremely successful so far and follows the well-worn path of other companies that have made purchases to grow revenue and profit.
Major examples include the successful expansion into Europe by Ramsay Health Care Limited (ASX: RHC), the poor overseas acquisitions of QBE Insurance Group Ltd (ASX: QBE) and National Australia Bank Ltd. (ASX: NAB), and the growth strategy employed by Computershare Limited (ASX: CPU).
The problem for G8 and its shareholders is that so many investors remember the catastrophic failure of ABC Learning back in 2008/09. G8 has, so far, used new equity and loan facilities to purchase centres but the purchases have come at such a rapid pace that investors and analysts are questioning the funding and timing of future purchases.
Time to Buy?
In my opinion, when compared with other growth stocks on the ASX, G8 stacks up well. The consensus earnings per share forecast for the 2015 financial year is 28.4 cents and dividend per share of 25.3 cents. This puts G8 on a forward price to earnings ratio of just 11 and yield of 7.8% fully franked (11.2% grossed up).
Meanwhile, investors are paying 17 times earnings for 15% growth and a 2.3% yield from Computershare. Admittedly the risk of capital loss is higher, but the reward for meeting expectations will be much larger.
