What Have We Learned?
Growing EdTech Trading at 4× Earnings
In this piece we will try and answer the questions that we are always asking about new, potential investments. Is the name cheap in terms of its business fundamentals, growth, and opportunities? Is the growth likely to continue to help drive re-rating and act as a catalyst? And what are the risks to the investment?
Business valuations track the free cash flow and growth in the underlying business, so we want to know how all of the underlying metrics point in terms of those equations. How fast might growth be and so how quickly might a name re-rate, that is, if it is cheap in the first place. And along with this goes a critical question as to the skills and ability of management: what have they done so far, has it worked, have they run the business well?
This one on the face of it does appear to be cheap. Trading at 4.4× earnings, growing well (around 25% per year), having a large pile of cash and investments, with several potential avenues for future growth, new business, and with a very specific moat. Key questions for the company are whether it can grow beyond Korea, can it expand into a potential AI-related business, and can it expand beyond the demographic niche that it currently controls?