Laureate Education President Buys Stock After Earnings Sell-Off (LAUR)

From Insider Score: Two weeks after the stock of Laureate Education (LAUR) sold off in the wake of earnings, the company's president has stepped up with a $1.5M open market buy.

Raph Appadoo bought 30K shares of LAUR at $48.74 on May 8th, upping his holdings in the company to 59.66K shares. Appadoo, who joined the company in 2000 after serving as an executive at Aetna (AET) and international units of Merrill Lynch (MER) and General Motors (GM), also owns 15.8K shares of restricted stock (vesting in April 2007) and options on 488.5K shares (of which about 350K shares have vested). The buy marks an about-face for Appadoo, who sold 100K shares at $53.67 on March 24th. His buy was the first for a LAUR insider since December 2003, and it was the largest open market purchase on record for a company insider.

Shares of LAUR, a for-profit higher education provider, are down a little more than -10% since the company reported first-quarter results after the bell on April 27th. For Q1, LAUR reported a net loss of -$675K, or -1 cent per share, compared to a year-ago profit of $1.9M, or 4 cents per share. Revenue rose 32% to $235.1M, and the company reported a 34% increase in student enrollments, ending the quarter with approximately 226K students at two-dozen physical and online campuses in the U.S., Mexico, South America, Europe, and China. The company's results beat analyst estimates of a -4 cents per share loss on $230M in revenue, and LAUR reiterated its full-year guidance of $2.05 to $2.15 per share in earnings.

LAUR's post-earnings sell-off appears to be related to profit taking and valuation concerns (the stock was up about 20% over the 52-weeks leading up to earnings), as LAUR management was relatively bullish. Rich Smith, a contributor to The Motley Fool, says investors were turned off by LAUR's modest (at best) cash flow and valuation.

"Perhaps the real reason LAUR's shares fell is because investors realized that those shares were too expensive in the first place. The firm didn't include a cash flow statement in its earnings release, but based on its most recently issued cash flow statement -- for fiscal year 2005 -- we can see that LAUR generated only $32 million in free cash flow last year, or about 40% of its reported net profits under generally accepted accounting principles. Even an investor willing to pay 34 times trailing earnings for a stock projected to grow at only 20% per annum over the next five years might balk when realizing that the price-to-free cash flow ratio on that same company is more than twice as high: 72," Smith wrote.