Company Profile: Student Transportation, Inc.
STB: TSX and NASDAQ (this stock trades on both exchanges so you are able to purchase in CAD or USD)
After profiling large cap stocks the last few weeks, I am excited to return to something a bit smaller by profiling Student Transportation Inc. I am also really excited to look into this company as it recently made a significant investment in HopSkipDrive (a private company) which is like Uber for kids. I came across HopSkipDrive in the past and thought it was a fantastic idea but was curious how they overcome the obvious hurdles of safety and liability. Student Transportation Inc. provides conventional bussing of kids to school and field trips, etc. whereas HopSkipDrive works alongside traditional bussing to help parents get kids where they need to go before or after school.
With my children’s board, school bussing has become a major issue. In an effort to save costs, our school board has the same bus and driver run multiple bus trips in the morning and again in the afternoon resulting in school start times varying by over an hour. As a result of this, and congregated bus stops that are inconvenient for walking, parents are driving their kids to school in greater frequency. This past fall, some families in the city decided to charter their own bus to avoid the hassles of the above! HopSkipDrive would come in handy for many of these families and likely at a cheaper cost. Also, Student Transportation Inc. has an existing “charter” type service currently in place.
· As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations. I am applying some basic evaluation tools to this stock along with some commentary but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read my Legal Disclaimer. Also, I do not own Student Transportation, Inc. stock and am not affiliated with them in any manner.
What is Student Transportation, Inc.?
Student Transportation Inc. (STI) is a school bussing company that operates across all of North America. It transports 1,250,000 school children daily in busses that parents are increasingly demanding be more connected and environmentally friendly. STI claims to be a safety leader; its website indicates that statistics show that children who walk, ride bicycles, use public transportation, drive themselves or ride with other students and parents are not as safe as those that ride the school bus. With the comeback of the “walk to school” push, I would suspect some parents would balk at that statistic! In 2017, it secured its largest contract to date, a 10 year, $187 million contract with a customer in Florida thus doubling its operations.
STI looks poised for continued success. Here are some highlights from its 2017 Fiscal Year Report (its fiscal year runs June to June of each year – a fiscal year end is an arbitrary year end for accounting purposes and is often different for each company and is different from the standard calendar year of January to January with which we are all familiar):
· Revenue grew by just over 6% since last year;
· Driver retention and recruitment was its #1 issue in 2017. This is not surprising as it does seem the bus companies have a great difficulty in hiring individuals for the odd hours that is school. It is using fleet management and technology available to have fewer busses but continued coverage;
· Severe weather across North America also created issues and lost revenue days in 2017 as many school boards decided not to have the kids make up lost days. Yet again, climate change making an impact to company’s bottom lines!
· Purchased a new family run transportation business in 2017 which has over 100 vehicles and $8.5 million in new revenues and long-term contracts; and
· STI has a Direct to Parent option which appears to be a service where parents can hire a school bus on their own accord to transport their kids to school.
Finally, I will tell you a bit about HopSkipDrive because I am quite interested in this concept. HopSkipDrive is like Uber for kids (Uber and Lyft do not allow minors unaccompanied by a guardian). It is a ride service designed to transport your kids (ages 6 and older) around safely when you are unable. Every driver is fingerprinted and the ride is monitored in real time and you can follow along on an app. At this point, it appears they are only operating in Los Angeles/Orange County and San Francisco and the East Bay. What do you think? Would you use the service? I probably would if I was comfortable with the driver and was perhaps able to establish an ongoing relationship with a particular driver. I used to work with a lady who sent her older child to hockey practice in a taxi so this would be a good alternative!
What is School Transportation Inc.’s stock doing?
As at November 23, 2017, the numbers from our basic stock evaluation tools are as follows:
Share price: $5.84 USD
One share of STI would cost you $5.84 USD. The price over the past 52 weeks has ranged from $5.39 to $6.21 USD.
Price to Earnings (P/E): 48.17 TTM (Trailing Twelve Months – the number over the last 12-month period)
Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued. The industry average here according to Morningstar is 21. To put this figure into perspective, the market is giving STI a value equal to 48 years of its earnings so investors appear to be expecting this stock to grow as they are paying quite a bit per share for the earnings they currently are receiving.
Dividend Yield: 7.53%
Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary. Dividend yield represents the amount the company pays out in dividends relative to its share price. While a higher dividend yield is usually more desirable, you still need to consider the health of the underlying company before making a generalization either way. STI also has a Dividend Reinvestment Program (DRIP) which is attractive to investors as instead of the dividend simply going into a separate account, the money is reinvested through the purchase of additional shares. At 7.53%, this dividend is fairly healthy but the dividend yield will vary depending on the stock price. If the stock price went up and the dividend stayed the same, the dividend yield percentage will obviously go down.
Earnings per Share (EPS): $0.12 TTM
This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential.
STI shares earn $0.12 per share and it has been increasing over the past five years. This EPS is considerably lower than the stock profiled last week, Michaels which had an EPS of $1.89.
Revenue: $643 Million TTM (Trailing Twelve Months)
Increasing revenue is a good sign that the company is growing. If you look at past revenue figures, STI’s Revenue has grown every year. Indeed, its Revenue is up from last year.
Return on Equity (ROE): 8.78%
ROE tells you what sort of return the company is getting on the shareholders money. An increasing ROE is a good sign. STI’s ROE last year was 4.74%.
Market Capitalization: $554.1 Million
This indicates STI is a small cap stock. Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies.
Net Profit Margin: 1.59% TTM (Trailing Twelve Months)
This ratio tells us what profit is left over after the company pays its expenses for the year. The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin. Here, STI’s Net Profit Margin is generally increasing each year.
Cash Flow per Share: -$0.03
Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio because it is more difficult to manipulate cash flow numbers than it is earnings numbers. A higher value usually indicates the company is in a healthier position.
This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance.
In the case of STI, it currently has a negative cash flow per share figure. Its Management Discussion and Analysis for the three months ended September 2017 (or what STI would refer to as their “first quarter” given its fiscal year end is June 2017) suggest that the cash flow is negative at this point in the year because of the seasonal nature of bussing. STI is coming off a low season, being the summer months, when there is less cash flow coming in as school is not yet in session. So, this likely explains the negative cash flow at this time. It annual cash flow is $16 Million TTM so it is not as though the company has a negative cash flow on an annual basis.
Price to Sales (P/S): 1.0
This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the industry average is 3.8 so STI is significantly lower suggesting it could be a good investment on this metric.
Price to Book (P/B): 5.2
This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. It is the value of the stock in comparison to the underlying assets of the company. Thus, a low P/B relative to the stock price suggests you are not paying too much for what would be leftover if the company went bankrupt for example. The industry average is 3.7.
Price to Cash Flow (P/CF): 10.5
Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the industry average for this industry is 10.7 so STI is right on the average.
This completes a basic evaluation of STI. As always, there are tons of articles and discussions online about this stock and all stocks so they are also a good place to look at for further consideration. This stock has a good dividend yield and demand for school bussing should remain constant into the future. I am not aware of any other way mass amounts of kids are getting to school! Having said that, rising fuel costs could eat in profits and overall cost to operate a fleet of vehicles may go up considerably in the future so STI is well advised to work on its fleet management technology.
** Top photo by Nubia Navarro on Stocksnap.io