Ambassadors Group Inc (NASDAQ:EPAX) is an education company engaged in the organization and promotion of worldwide travel programs for students. The company also provides educational services such as book summaries, critical essays and online study guides through its subsidiary, BookRags. Ambassadors is a micro-cap with a market capitalization of only $59 million and average daily volume of a little over 23,000 shares.
Ambassadors has been struggling
Ambassadors Group Inc (NASDAQ:EPAX) has been struggling during the past four years. Indeed, the company’s revenue has declined 41% over the period and thanks to a high level of operational gearing, net income has collapsed a staggering 92% over the same period. The company’s stock price has also notched five-year losses of 67%.
These declines for the most part have been down due to a lower level of disposable income thanks to the economic environment, which has reduced demand for worldwide travel.
Still, at these levels and after four years of declines, Ambassadors is finally looking like it could be a value investment. At the end of the fiscal second quarter, Ambassadors Group Inc (NASDAQ:EPAX) had a book value per share of $3.67, 6% away from current levels. In addition, the company had no debt and a cash balance of $55.9 million, or in other words, $3.28 per share. What’s more, current assets covered current liabilities 1.4 times so the company has plenty of fiscal stability with little risk of default.
Ambassadors reported a strong fiscal second quarter
Ambassadors Group Inc (NASDAQ:EPAX) reported a strong fiscal second quarter this year with a net income of $8 million, but this was after two successive quarters of losses, which cost the company a cumulative $18 million. However, digging deeper, away from the income statement, it would appear that these losses were mostly non-cash charges and the company’s cumulative free cash flow for these two quarters was around $10 million. For the first half of this year Ambassadors Group Inc (NASDAQ:EPAX) has been free cash flow positive to the tune of $20.6 million.
It’s not all bad news, in other words, and it would appear that the company is on the rise.
Furthermore, management has been working hard to turn the company around in recent years. During 2012, management started slashing costs and the company as a whole noted a slight uptick in the number of students applying for its overseas travel programs. Ambassadors Group Inc (NASDAQ:EPAX) also slashed its direct mail campaign expenditure by 25% during 2012 and eliminated a number of non-core programs that had been poor performers in recent years. Moreover, management hacked 10% off Ambassadors’ corporate expenses bill during 2012, which helped to address the company’s high level of operational gearing.
There is money to be made in Ambassadors’ business model and if the company can combat its own high expenses and increase customer numbers, cash could soon start to flow in. For example, according to the company’s own presentation, the United States’ youth travel market is worth around $14 billion and the average household income of attendees on its courses is around $70,000, so there is plenty of cash to be spent.
Overall, Ambassadors Group Inc (NASDAQ:EPAX) is an interesting turnaround opportunity with plenty of scope for growth and a cash-rich balance sheet.