Perdoceo Education’s 21% return over the past six months has outpaced the S&P 500 by 19%, and its stock price has climbed to $32.30 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Perdoceo Education, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Perdoceo Education Not Exciting?
We’re happy investors have made money, but we don't have much confidence in Perdoceo Education. Here are two reasons why PRDO doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Perdoceo Education’s sales grew at a weak 2.5% compounded annual growth rate over the last five years. This was below our standards. 
2. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Perdoceo Education’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Perdoceo Education isn’t a terrible business, but it isn’t one of our picks. With its shares topping the market in recent months, the stock trades at 13.3× forward EV-to-EBITDA (or $32.30 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at the most dominant software business in the world.
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