It's currently one of the best growth shares on the S&P/ ASX200 Index (ASX: XJO), but is the IDP Education Ltd (ASX: IEL) share price a buy today?
Firstly, I must admit to having been consistently negative on this business since its November 2015 IPO at just $2.65 per share, which means avoiding this stock has been a diabolical call by me.
For those not familiar with the business IDP Education has two main fee-earning operations that are student placement services and IELTs testing which is a common abbreviation for English language services testing.
The IELTs testing accounted for over half of the total group revenue of $304.3 million over FY 2019, with IELTs testing revenue growth up 20% over the prior corresponding period.
Indeed it has been the rocketing IELTs testing revenues that has catapulted the share price to $18.50 alongside a big profit multiple re-rating assigned by the market on the back of wildly positive sentiment about the group's growth prospects.
The bullish sentiment is largely a symptom of the thematic of exponentially-growing demand from emerging market students for these higher education type services.
That thematic is correct, but I've seen nothing to change my view on the credibility of the IELTs testing system.
A lot of the revenue is from students failing the first exam and then having to repeat it several times before obtaining the score they require. In the past IDP has faced accusations from students that the marking system is unfair, while I won't pass comment on, but this is something for investors blindly bidding the shares higher to chew on.
Interestingly IDP choose to flag "customer satisfaction" as a key point for investors to note in the last bullet point below of a list of operational highlights it made for the half year ending December 31 2018.
So whatever your opinion on the IDP business model and I'm clearly in the minority in being unimpressed, it's worth noting that IDP at 55x annualised earnings per share of 33.2 cents is not going to smoke out the value investors anyway.
Indeed it will be hard for a services business like this to grow at rates strong enough to justify this valuation. As such you can count me out as a buyer of shares, although clearly that's not to say they cannot go higher.
