Why the G8 Education share price tumbled 5.5% lower yesterday

The G8 Education Ltd (ASX:GEM) share price tumbled 5.5% lower on Wednesday. Here's why…

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The G8 Education Ltd (ASX: GEM) share price was one of the worst performers on the ASX 200 on Wednesday.

The childcare centre operator's shares finished the day 5.5% lower at $3.06.

Why did the G8 Education share price tumble lower?

On Wednesday G8 Education held its annual general meeting in the Gold Coast. As well as providing a breakdown on the company's performance in FY 2018, management provided an update on trading so far this year.

When the company released its full year results in February it provided guidance for FY 2019.

It advised that it expected occupancy growth of between 1% and 2%, wage efficiency to continue the performance trend established in the second half of 2018, incremental earnings from prior year acquisitions of $10 million, and full year net investment costs of $2 million associated with the opening of greenfield centres in 2019.

The company's managing director, Gary Carroll, revealed that current year trading is in line with these key assumptions.

Mr Carroll said: "While occupancy challenges driven by supply growth are present in some areas, all States have continued the momentum that was built in the second half of 2018. We expect occupancy growth to be at the upper end of the targeted range for the full year."

However, he warned that "occupancy and profit growth will be weighted towards the second half of the year." This is due to the timing of delivery of the company's strategic initiatives and the ramp‐up of prior year greenfield centres.

Investors may believe that this means the company's first half is going to be a touch underwhelming and have decided to lock in their gains after a stellar rise over the last six months. Prior to yesterday's decline, the company's shares had risen 53% since October 17.

Should you buy the dip?

I'm not convinced that the childcare centre industry is over the worst of its supply issues just yet, so I intend to stay clear of G8 Education and Think Childcare Ltd (ASX: TNK) for the time being.

Instead of G8 Education, I would gain exposure to the education sector through a company like IDP Education Ltd (ASX: IEL) which has been growing at an incredible rate.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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