As Warren Buffet once said that the thing with stocks is that many a times they do trade at funny valuations and buying such stocks made him rich. One such stock I recently came across is Career Point. This company provides coaching for IIT JEE and other engineering entrance exam. It is a debt free company trading at a PE of 8. Anything less than a PE of 10 is undervalued. Being an IITian myself I know how much demand for IIT coaching is there in India and Career point does have an excellent brand name. In fact Career point has a cash of Rs40 per share on its books and if we subtract this from the current market price of 150, the stock trades at a PE of 7.
I did a lot of browsing to see if there is anything fundamentally wrong with this company. The only reason I could find is that the company has a negative free cash flow which is due to the huge capital expenditure it is making in opening engineering and MBA colleges of its own. In doing so career point is moving away from its core strength of entrance exam coaching but after talking to a friend who is teaching at career point, I found that the university business of the company is actually doing well with classes scheduled to start from FY13 running at full capacity. If this really happens career point revenue should actually double within a year as current valuation of the company does not have any contribution from the university business.
To me, Career point fell all the way from 700 to 150 more in sympathy with the other education stocks like educomp. But whereas the smart /computerized classrooms provided by Educomp is a luxury, the coaching service provided by career point is a necessity.
Also in betting on the future of career point we are betting on the famous Indian consumerism which can be evident form the fact that all the consumer based stocks like BATA, Titan, ITC are currently trading at PE of over 30 inspite of the economy not doing well and it is only a matter of time before market realizes the true potential of career point
I did a lot of browsing to see if there is anything fundamentally wrong with this company. The only reason I could find is that the company has a negative free cash flow which is due to the huge capital expenditure it is making in opening engineering and MBA colleges of its own. In doing so career point is moving away from its core strength of entrance exam coaching but after talking to a friend who is teaching at career point, I found that the university business of the company is actually doing well with classes scheduled to start from FY13 running at full capacity. If this really happens career point revenue should actually double within a year as current valuation of the company does not have any contribution from the university business.
To me, Career point fell all the way from 700 to 150 more in sympathy with the other education stocks like educomp. But whereas the smart /computerized classrooms provided by Educomp is a luxury, the coaching service provided by career point is a necessity.
Also in betting on the future of career point we are betting on the famous Indian consumerism which can be evident form the fact that all the consumer based stocks like BATA, Titan, ITC are currently trading at PE of over 30 inspite of the economy not doing well and it is only a matter of time before market realizes the true potential of career point
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