Now is the time to sell G8 Education Ltd

The $688 million funding gap
Basic fundamental analysis of G8 Education’s financials reveals that since 2007 it has been left with a growing funding gap of $668 million.
This $668 million consists of negative cash flows after investing of $572 million, dividend payouts of $68 million, $27 million in other financing cash flows, and $0.17 million in foreign exchange effects. This leaves G8 Education with a funding gap of $668 million. To offset this gap, G8 Education has had to increase its borrowings by $385 million and raise equity of $400 million to cover the shortfall.
Further, G8 Education’s return on equity (ROE) has consistently averaged a very poor 4.59% since 2007. In 2014, the company generated a ROE of around 13%. The only problem is that its growth-through-acquisition strategy has increased debt by 66% per year from $10 million to $352 million. Its debt-to-equity ratio is now at 42.83% in 2014.
Poor share price performance
In the past 12 months, G8 Education’s share price has dropped by around 21%, a massive underperformance when you compare it to the S&P/ASX 200 (Index: ^AXJO)(ASX: XJO), which is up around 4% during the same time. The share price, which is currently around $3.50 is a long way from its high of around $5.60 back in September 2014.
At its current price of around $3.50 and a P/E of around 20, I think G8 Education’s shares are still overvalued, even at these levels.

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