G8 Education is the largest listed provider of childcare services in Australia. The company has not released any negative news recently but the stock has fallen more than 10% over the past eight trading sessions and more than 40% since reaching its all-time high in September 2014.
As the chart below shows, G8 Education has grown rapidly over the last five years with a compounded annual growth rate of 93% in underlying net profit after taxes from 2010 to 2014. Source: Company reports
More recently, there has been a lot of negative commentary about G8’s ‘roll up’ business model and the ability for the company to maintain the current growth rate while still making acquisitions at reasonable prices.
I believe the sell-off has been overdone and I expect G8 education to continue to increase the number of childcare places it offers. The government has recently announced changes to the childcare system that should see the demand for childcare services continue to grow substantially in the short to medium term.
G8 Education looks attractive at the current share price and is offering a dividend yield of over 7% that should provide support from further share price falls.
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GEM Price at posting:
$3.36 Sentiment: Hold Disclosure: Held
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