Visit Grand Canyon to Book Nice Profits

Grand Canyon Education is perfectly situated to do especially well in our current Covid-dominated world. It provides technology services, infrastructure and processes that support educational institutions with both in-person and online teaching. The firm was flourishing before the virus disrupted things and appears poised to gain customers and market share now due to the surge in on-line classes at almost all teaching levels. Since 2010 all major metrics rose significantly. EPS quintupled while book value went up 10-fold. Continuous shareholders have nothing to complain about, yet the 356% rise over the past decade has lagged the increase in profitability. By definition, LOPE's price-to-earnings is now well below its typical level. That implies plenty of upside as profits continue to improve and the stock's multiple expands toward normal. Left to right consistent growth like LOPE's is hard to find. Getting it typically requires paying high valuations. That's certainly not the case with Grand Canyon Education right now. Simply reverting back to an average P/E on its 2021 estimate suggests LOPE can rebound to almost $110 by Dec. 31, 2021. From its Thursday close at $83.10 that would deliver almost a 32% gain. That goal price is not far-fetched. In 2017, LOPE topped out at $96.10 on earnings per share of $5.06. LOPE peaked between $106.10 and $132.70 during each of the three years 2018 right through 2020 year-to-date. All-time record EPS are now projected for next year and beyond. Five of Grand Canyon's last six should have sold moments (red-starred above) saw the shares trade for greater than 21-times multiples. A return to the low-end of those enthusiastic valuations could easily justify LOPE at $128 to $135 within 15-months or so. Yahoo Finance is in pretty good agreement concerning LOPE. It calls the stock undervalued and sees it at $113.40 again by this time next year. Option-minded players, familiar with my buy/write strategy, can lock in excellent potential gains, while also receiving some decent downside protection. The longest duration options on LOPE extend to June 18, 2021. Setting up a buy/write combination using the near-the-money $85 strike price would have looked like this from a cash flow perspective with the shares at $83.10. When executed in a margin-type account with excess buying power available the money received from the sale of the options can be used to help pay for the shares purchased. If held through expiration day there are just two possible outcomes. LOPE will either close at $85 or higher, or below $85. If it rises by at least 2.3% by Jun. 18, 2020 the following best-case scenario will play out. That very minor upturn, or anything better, would translate into a 36.65% gain over just 217-days. That's a very exciting 61.6% annualized rate. What if LOPE fails to make even that small move higher? If below $85 on expiration day the worst-case scenario detailed next would unfold. Barring a major decline, however, even that event would be far from scary. You would end up having to double your position size and need to lay out some additional cash. Even so, your average cost per share would drop to just $73.60, 11.4% below the trade inception price. Future stock market action can never be guaranteed. We can know for sure, though, that owning LOPE at the break-even price indicated would have allowed for immediate profitable liquidation during 152 of the most recent 156 weeks dating back three full years. Reward to risk like that is hard to beat. Buy some shares, sell some puts or consider setting up buy/write combinations to profit from this fine company's future.

Visit Grand Canyon to Book Nice Profits

Grand Canyon Education is a great "left to right" stock with a low valuation.

Columnist Conversation

8 Trading Rules from T. T. Hoyne

This Weekend on Real Money

Classic Trading Rules From Bernard Baruch

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.