Lincoln Educational’s stock price has taken a beating over the past six months, shedding 34.3% of its value and falling to $25.40 per share. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Lincoln Educational, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Lincoln Educational Will Underperform?
Even though the stock has become cheaper, we don’t have much confidence in Lincoln Educational. Here are three reasons why LINC doesn’t excite us, plus one stock we’d rather own.
1. Weak Growth in Enrolled Students Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like Lincoln Educational, our preferred volume metric is enrolled students). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Lincoln Educational’s enrolled students came in at 18,904 in the latest quarter, and over the last two years, averaged 16% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Cash Flow Margin Set to Decline
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Over the next year, analysts predict Lincoln Educational’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 4.3% for the last 12 months will decrease to 1.1%.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
Over the last few years, Lincoln Educational’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Lincoln Educational, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 26.2× forward P/E (or $25.40 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at one of our top software and edge computing picks.
Stocks We Would Buy Instead of Lincoln Educational
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