Understanding Aspen Group’s Risk Factors Post Q1

Shares of online higher education services provider Aspen Group Inc. (ASPU) have sunk 48.5% over the past 12 months. Recently, the company delivered better-than-estimated numbers in Q1 fiscal 2022. 

In such a scenario it bodes well for investors to take a look at Aspen’s financials, as well as what has changed in its key risk factors.

Robust growth in all three of Aspen’s business units helped its Q1 revenue increase 28.1% year-over-year to $19.4 million, outperforming consensus estimates by $204,500. In Q1, new student enrolments increased 4% sequentially to 2,276.

Michael Mathews, chairman and CEO of Aspen, remarked, “The first quarter delivered positive sequential improvement in our operating and profitability metrics. A portion of this performance is attributable to our recently instated Aspen 2.0 strategy, whereby we invest only in our highest LTV programs while continuing to control expenses.

“We expect profitability gains from Aspen 2.0 to have the greatest impact in the second half of fiscal 2022 as we continue to realize the benefits of growth in our highest efficiency businesses.”

Higher instructional costs and marketing expenses meant the gross margin of the company lowered to 54% from 59% a year ago. Net loss per share of the company narrowed to $0.03 per share, from a net loss per share of $0.04 a year ago. (See Aspen Group stock charts on TipRanks)

On September 14, Roth Capital analyst Darren Aftahi reiterated a Buy rating on the stock, while maintaining a price target of $11.

Aftahi commented, “Under the 2.0 framework, ASPU’s highest LTV segments expanded to ~55% of revenue, and both saw adjusted EBITDA margins over 20%. With little changes in the forward outlook and model, we believe shares continue to look attractive trading at <2x FY22 sales and a path to reduced cash burn/profits.”

Based on four unanimous Buys, consensus rating for the stock is a Strong Buy. The average Aspen Group price target of $11.50 implies 102.8% potential upside for the stock.

Risk Factors

According to the new TipRanks Risk Factors tool, Aspen’s main risk category is Legal & Regulatory, accounting for 43% of the total 60 risks identified. Since July, the company has added one key risk factor.

Under the Legal & Regulatory risk category, Aspen highlighted that the proposed new regulations related to mandatory COVID-19 vaccination of employees may adversely impact its business.  

The proposed new rule, announced by President Biden on September 9, requires all employers with at least 100 employees to make sure that their employees are fully vaccinated, or require unvaccinated employees to get a negative test at least once a week.

There remains a lack of clarity as to if this mandate will apply to all employees or only those who work in the office; additionally, documentation of compliance also remains unclear. The exact impact of the mandate on Aspen remains unclear. Further, it may also lead to employee attrition.

The sector average Legal & Regulatory risk factor is 17%.

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