The shares of education services provider Navitas Limited (ASX: NVT) have sunk lower by 4.5% today following the release of its half-year result for the period ended December 31 2016.
For the first-half of FY 2017 the company reported an 8% drop in EBITDA to $76.6 million.
Although all its segments performed reasonably poorly, its University Partnerships segment was largely to blame for the poor result.
Due in part to the closure of the Macquarie and Curtin Sydney colleges, the segment posted a 12% drop in revenue to $290.6 million.
Despite this Navitas was able to deliver reported net profit after tax growth of 18% to $53.3 million on the bottom line.
This was the result of a $14.3 million non-cash gain on the disposal of its PIBT business into a joint venture with Edith Cowan University.
Without this non-cash gain net profit after tax in the first-half would have fallen around 13.5% to $39 million.
Should you buy the dip?
Although the company has a strong balance sheet and has restructured the business to position itself better for long-term growth, I still wouldn't invest in its shares at the current price.
Even if you use the reported net profit figure which includes the non-cash gain, its shares are still changing hands at 17x trailing earnings.
Whilst this by no means makes it the most expensive share on the market, considering its underlying earnings have fallen significantly during the first-half, it strikes me as being severely overpriced.
Instead of Navitas I would suggest investors take a look at the likes of G8 Education Ltd (ASX: GEM) and Think Childcare Ltd (ASX: TNK). At least until there is a marked improvement in Navitas' underlying performance.
