is EDU going to $0, page-8

I used to be a shareholder (until a little over a year ago, when it was becoming clear that they had failed to close the deal to buy the nursing training business which, in my mind, was a critical acquisition and urgently needed in order de-risk the company), so the topic of this thread is one that I thought of penning some time ago, but never got round to it.

People need to be sure to understand the financial dynamics for this business, because the operating leverage is acute, with some niggly liabilities (apart from the debt) lurking in non-obvious places, including ~$10m in lease obligations and $2m in deferred Revenue that need servicing.

In terms of the capital cycle, sure, they get to book enrolment receipts up-front, but then there's the ensuing back book that needs to be serviced and to fund it needs continued strong increases in enrolments. So strong enrolment growth would need to continue for a few years in order for the company to build up the sort of capital buffer which is necessary for a business model with this kind of lumpy and out-of-phase capital cycle.

EDU is undercapitalised today, with little doubt, but its cost of equity is prohibitively expensive, so the company is going to have to try to trade its way out of this.

Not going to lie, I think it's a line-ball call as to whether or not they make it.

Their best bet, I think, is to find a buyer of the business.
But I think that's a tough ask for the same reason that there is so little buying interest in the stock.

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