Ambassadors Group, Inc. (EPAX)

Stock has little to know capital investment and therefore generates high return on capital. Balance sheet is strong and a rebound in travel will eventually occur. Valuation is more then reasonable with enough of a margin of safety.

FC

Will likely see some nice returns if you have patience and wait for student travel to start increasing again.

Lots of upside potential. Love zero debt, and 26% return on equity. Room to run.

CAPS ALL STAR

Revenue decline seems to be bottoming out. Good cash flow, good margin, and a dividend.

Ambassadors Group is a Motley Fool recent newsletter pick that I felt was over valued. With a 20% stock price trimming today after disappointing Mr. Market with it's earnings I gave it another look. The recession has clearly affected it as it's bookings for student travel have dropped significantly. Ambassadors has a niche market moving around students, athletes and professionals domestically and worldwide. As such it carries no inventory and has decent margins, but growth depends on more users being added to the program. With profit margins of 20% and operating margins of 29% even in a period of no growth the revenue and cash flow stream are impressive. No debt, 11% insider ownership and top of it's class in this arena. Yes, it's business plan could be copied, but parents willing to shell out large dollars so junior or juniorette can get a lifetime experience are going to want some decent creditials. 1.5% dividend, three good quarters of growth. Current setback recession related, (meaning temporary?) and with a decent entry point Ambassador Group might be a worthwhile play. If the economy continues to lag, swine flu becomes an issue, or airline travel becomes undesirable then there might be a better entry point down the line, but at this time, the buy low and sell high model points to taking a chance.

Mmm...education...

Nice dip today (Oct 22, 2009). Here is my submittal for EPAX.

Great company with unique brand that cannot be duplicated, high ROIC, minimal to no WC needed to grow business, generally good mgmt who manage business (ie costs, dividend policy) well in light of recent economic climate.

growth

School season is starting and this company is ripe for growth.

This stock has just touched the surface of its target market.

Cheap stock to buy

Good value proposition

Enterprise value of only $66MM
Annual FCF has been round about $20-$30MM recently.
Clean Balance sheet.
Healthy dividend.
High ROE, excellent profit margin.

Strangely but consistently loses money in Q1 and Q4, but makes up in Q2 and Q3, and overall always profitable for last several years.

This one will be 3X or 4X in 5 years.

More students in this downturn.

Hang on and have fun!

Ambassadors Group promotes, and plans educational excursions for middle school on up to business professionals. There are very little assets required for this business so returns on invested capital are huge. Also the company has a negative capital structure, because it receives payment from customers long before they have to pay for the cost of the trips. The only investment the company has to make when a customer orders a trip is a small hedge in foreign currency to ensure that the price quoted will be profitable.
These trips are at high in price (3500-7000) yet also offer college and continuing education credits. Even though these trips are expensive, education is something parents will find funds for.
2008 and 2009 should be difficult years, though the company should make a little under 1 dollar per share this year and hopefully a little more in 09. This is considerably less than the ~1.50 it made in 07. The company had said since 9/11 that it was going to hold on to a considerable amount of cash because it knew its business was very susceptible to the business cycle and terrorism. This policy is enabling the company to return capital to shareholders through very advantageous share buybacks, still paying a .46 a share dividend and maintaining a pristine balance sheet.

I think it is worth at least 25 and when the economy turns I do not think a return to the 40's is out of the question by say 2012 or so.