When I shared a list of stocks you should watch closely before the general election, LearnAfrica was one of the stocks I asked my blog subscribers and Whatsapp group members to keep an eagle eye on.
The stock went up by 40% in 2018.
The stock, from the time we shared out first analysis, has appreciated by 12% to close at N1.4, from N1.24.
Here are 3 reasons we think the publishing company could go higher than its current market price.
The stock’s 50-day SMA had just crossed its 200-day to the upside.
When a stock is trending up as a result of increased buying interest, the moving average tends to follow the same direction and one of such is the 50-day SMA, an important average that reflects investors’ sentiment in medium to short term.
The 50-day MA also coincides with the 3-month period; this is the period every company is expected to release its quarterly results. A cross above the 200-day SMA indicates that the penny stock is attracting attention.
Recent Quarterly Results
Not all 50-day crosses above the 200-day are bullish confirmation, which is why fundamental analysis of the stock is important. Fundamentals let you see reasons investors are bullish on stocks so you don’t jump into a “pump and dump stock”, here, we look at key performance metrics like revenue, cost of sales, profit margin, profit after tax and EPS.
If LearnAfrica is up by 21.74% and 10,24% in the last 3 and 6 months, it is, therefore, necessary to probe the fundamental reasons the stock is trending higher.
In its latest Q3 result, LearnAfrica’s revenue grew from N1.7billion in 2017 to N2.6 billion, a 50% growth and a double growth (35%) in profit after tax, from N142m in 2017 to N192 m in 2018.
Fair Value Estimate
I don’t buy a stock if its market price is above my estimated fair value. I use the Warren Buffet stock valuation method, a straight forward formula that uses the 10-year bond yield and cash flow/earnings per share.
LearnAfrica, as of this analysis, has a trailing twelve month EPS of 41k. When you factor 10-year government bond yield 14-15% and an additional risk premium of 4%, you will arrive at a modest risk-adjusted discount of 19%. Discount the EPS of 41k by 19%, my estimate fair value will be N2.15, which is 53% above the market price.
On neutral ground, LearnAfrica stock should trend close to N2 on expected final year result.
Among stocks with 50-day crosses above 200-day SMA, Learn Africa offers the highest dividend yield which, as of this analysis, is 10%. This is one of the highest yields you will get from a trending stock in the market, and such a juicy return is bound to attract corporate investors’ attention.
Besides, Learn Africa Plc is one of the best dividend paying stocks in the NSE market.
Disclaimer: The analysis shared here are based on my personal opinion, you are advised to do your due diligence.