$Lincoln Educational Services (LINC.US)$ With a 75-year hist...

With 75 years of operating history, mainly training technicians and medical support staff, it went public at $20 in 2005, currently priced at $6.31, with a negative annual growth rate of -6.6%.

Over the past 5 years, the gross margin has increased from 50.6% to 58.6%, the return on net assets turned positive starting in 2019, reaching 55% in 2020, and dropping to 23.7% in 2021.

Over the past 5 years, both revenue and operating profit have continued to grow, with operating profit turning around in 2019, while net income saw a significant decline of 28.5% in 2021. Q1 2022 revenue increased by 5.8%, but operating profit fell by 105.4% into a loss range, net income decreased by 93.94%, barely staying flat.

The income statement shows that in 2021, interest expense accounted for 7.3% of operating profit, a manageable burden. The tax refund in 2020 reached 35 million, boosting post-tax profit to 48.6 million. Although there was a profit of 22.48 million from fixed asset sales in 2021, the shift from tax refund to tax expenditure led to a decline in net income. Excluding the one-time gain from asset sales, the pre-tax profit in 2021 was 25.47 million, an 88.5% increase from 13.51 million in 2020. The core profitability is still increasing.

But at the same time, it was found that there was a dividend of 8.62 million in preferred shares in 2021, this part should also be considered as interest expense, with a total interest of 10.63 million, accounting for 38.7% of operating profit, the pressure suddenly increased. After adjustment, the pre-tax net profit for 2021 was 16.85 million, compared to 1.673 million in 2020, showing much higher growth.

In Q1 2022, the growth rate of costs and expenses exceeded the growth rate of revenue, resulting in operating profit directly entering a loss range. Barely escaping the loss by relying on the tax refund for net income, common shareholders are still in the red after the preferred stock dividends.

Currently, the PE ratio is 6. If calculated with non-GAAP net income, the PE ratio is approximately 10.2. From the perspective of the 5-year profit growth rate, the valuation is not high. However, if the cost and expense continue to grow faster than revenue, as seen in the first quarter, the company will quickly fall into a loss.

Over the past 5 years, the asset-liability ratio has decreased from 70.5% to 51.1%. Receivables and inventory are very low, as well as intangible assets. Borrowings are no longer visible on the balance sheet, mainly due to the burden of $11.982 million in preferred stock dividends.

Over the past 5 years, operating net income has grown rapidly, and overall net cash inflow from investments indicates low asset demand. Debt has been reduced over the past two years. However, in 2022Q1, operating cash flow turned into a net outflow state. It is necessary to observe if this trend will continue.

Currently, the PE ratio is 6.1, adjusted to over 10. Following the Q1 conference call, there were many one-time expenses in the first quarter, which are expected to improve after the third quarter. Combined with the very stable balance sheet, it is advisable to be cautious now (⭐️)