This unloved ASX share can only shoot up from here

There is an ASX share that’s plunged this year that still has plenty of supporters among professional investors.

The IDP Education Ltd (ASX: IEL) share price has nose-dived almost 20% so far this year, and almost 30% since its high in mid-November.

The company is in the international student placement and English testing industry, which understandably has been pummelled by the COVID-19 pandemic.

Montgomery Investment Management chief investment officer Roger Montgomery, for one, believes this depression is temporary.

“IDP has a solid pipeline of leads and, with borders reopening, the future is looking bright,” he said in a blog post.

“We believe IDP is a very high-quality company.”

A victim of its own success?

Montgomery attributed the recent poor stock performance to the half-year results, which didn’t meet analyst expectations.

In this instance, he thought that IDP might have been a victim of its own past success in exceeding previous guidance.

“The initial market reaction was quite severe, pushing the share price well below its November 2021 high,” he said.

“Broker expectations were arguably optimistic… When a company misses analyst expectations, who’s fault is it – the company’s or the analysts’?”

Montgomery feels that, once the market catches up with the scale of opportunities that IDP can adopt, analysts will change their minds.

“From raising prices and margins in the India International English Language Testing System (IELTS) business, and from growing student placement volumes as Australian, UK, Canadian and US borders reopen fully, and universities chase international student revenue – we believe more optimistic forecasts will be re-integrated into analyst thinking.”

Plenty of tailwinds for IDP Education

In the testing business, recovery of lost business in China and increasing revenue per student in India are two possible tailwinds.

“The above factors point to meaningful upside potential for the IELTS operation’s earnings over the next 3 to 5 years.”

Over in the student placement division, the business actually grew 62.3% year on year. But Montgomery feels like the market wanted more.

“IDP management noted they have never seen such a supportive environment for chasing student volumes, one where all destination markets have very pro-student visa and work-rights regulations.”

Montgomery is not the only one who is bullish.

Goldman Sachs this week lifted its stock price target for IDP Education to $35, a 24% premium on the current level.

UBS is even more generous, setting a price target of $35.90.

In its report, Goldman Sachs stated there were one-off costs in the last half that shouldn’t repeat in the future.

“We expect a stronger than usual second half for IDP, driven by an emerging recovery in Australian student placements, continued strength in multi-destination student placements and greater than initially forecast synergies in the Indian IELTS operations.”

IDP Education shares closed Wednesday at $28.34.

The post This unloved ASX share can only shoot up from here appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Idp Education Pty Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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