Ambassadors Group, Inc. (NASDAQ:EPAX)

I like this stock. They have a virtual monopoly on what they do. It's all about the relationships and EPAX's relationship with P2P is very political. After the beating this stock took today I'm in and waiting. Patiently.

overreaction

Today marks a great day to buy!

While this one is going to be hurt in the short-run due to increased energy costs (making travel more expensive), and the slow-down in US growth and decrease in housing prices (making int'l travel even more difficult to afford), something tells me that the importance of international exposure is going to become just too apparent to everyone as time marches on.

This company has had an otherwise successful past, but got slamed by 38% today due to what they see as a slow-down in 2008 most likely to the reasons I provide above.

Now seems like a good time to step in with my virtual bounty of unlimited CAPS cash and buy-and-hold for a few years.

By the way, some people should have probably seen this fall coming, especially given some of the recent insider trades (of course, I have the advantage of 20-20 hindsight).

2 out of 3 thumbs up.

free cash flow of just over 32M, an impressive net profit margin of 30%, strong inside ownership (12.77%) and they even pay a dividend. looks good!

down $13 to $26

Seen the CEO on bloomberg, sounds interesting

Thesis:

Ambassadors Group organizes and promotes educational travel for students and buissness professionals through a non profit organization callled People to People. People to People was founded by Dwight D. Eisenhower to promote diplomacy by encouraging international student travel. Do not let the the non-profit label fool you, People to People is in fact a non profit organization, but Ambassadors Group has yielded eye popping margins since spining off of its parent company, Ambassadors International. Operating margins have averaged nearly 40% over the last 5 years, with slightly less stratisfiric 38% last year. I predict that margins will remain at their current levels. While most costs of the buisness are scalable, increased advertising spending to facilitate growth will keep margins down. Management indicated in its latest confrence call that after this year spending growth will slow to more historic levels. This will increase my fair value if they can expand margins.

Ambassadors has an exclusive contract with People to People for student travel untill 2010, and has a company option for ten years following. While I find it unlikely for the company not to renew this lucrative contract since People to People currently makes up all of Ambassadors revenue, it is nice that the company has the option. In my view, Ambassadors historical relationship, and contract with People to People, has given it a narrow economic moat. Since most of the cash for trips are paid upfront, the company does not have to worry about raising capial and infact the larger the company grows the more cash the company has. Management for Ambassadors has been slow to return their capital to shareholders. They believe the possiblity of inreased terroism and deteriating economy exist, leading to soft years now and possibly down the road. After the World Trade Center attack, management teams realized what a benefit it was to occupy a large cash position, and have since stated that 30 million is sufficent for over a year with zero revenue. This year management bought back approximately 38 million dollars in shares. As cash surpluses continue, I expect that management will increase dividends and share buybacks, as well as considering acquisitions. Since the margins of People to People are unlikly to be matched, I would perfer for Ambassadors to focus on the growth of People to People, and returning capital to its shareholders.

Valuation:

Ambassadors has grown steadily, but the threat that outside forces ( terrorism and soft economy) will hurt growth is real. In using a Discounted Cash Flow model, I assumed 20% growth this year, 17% in 2008, 15% in 2009, -25% in 2010 ( to factor risk), but then give them 20% growth in 2010 and 15% growth in 2011 befor tapering off to 5% a year untill 2015. I use a 10% discount on futre cash flows, wich considering the companies capital structure, I consider quite conservative. Using this model I come up with an Intrinsic Value of $57.25.

Looks like a good company (a spinoff) and it has been growing rapidly (30%+) the last few years. Beta is .93 and PEG is 1.33. profit margins >30%, small cap stock (695M) with dividends increasing and virtually no LT debt. only followed by 1 analyst. very seasonal (april - sept) , quarters look funky but annual numbres a great.. PE ratio seems high, but may be a good CAPS pick. I like the concept and "people to people" just has a nice ring to it.

Company has potential, I think I'll ride the roller coaster to the top of the next peak and then reconsider this pick.

The long term chart on this one is a thing of beauty.

Read what this company (Ambassadors Group) does. You'll like it. Oh, and according to their reports, they're making money and carry less of a debt-load than a first-time home buyer in northern VA.

Fast-growing and highly profitable company with interesting niche business; great balance sheet offers company the chance to consolidate competitors in a highly-fragmented industry

5-star $593 million market cap on 11/26/06.
People to People travel programs.
5STARsmallCAPS picks five star stocks with the smallest market caps.

I think I first came across this company on the Hidden Gems boards when reading one of stillwater's posts. It turns out, I had been one of their customers a few years ago when my son was nominated by one of his teachers to attend a People to People Leadership conference in Washington DC. It wasn't until I started to look at EPAX, that I made the connection. I can tell you that they are a professional outfit and must operate with great margins. My checkbook can attest to that. :-)

This company is part of the Ueberroth family travel empire. Peter Ueberroth, besides being a former Major League baseball commissioner and President of the United States Olympic Committee, is a very successful lifelong executive in the travel industry. He is still Chairman of the Board and largest individual shareholder of Ambassadors International (AMIE) which is a large travel company. Ambassadors Group (EPAX) was spun off from AMIE about 4 years ago and operates as an independent company. Peter Ueberroth is also the largest individual shareholder of EPAX, but is not on their board. However, his brother John is EPAX's Chairman and his son Joseph is on the Board.

EPAX runs the People to People programs which provide the travel and logistics infrastructure to various organizations involved with promoting cross cultural exchange programs. The have domestic and international programs for middle and high school age students and many international athletic exchange programs, as well as an array of cultural exchange programs for working professionals.

This is a highly seasonal business. The company makes money in the second and third quarters (April to September) and loses money the other two quarters. On an annual basis they are quite profitable and show returns on invested capital in the 25% range (higher depending on how you count all their cash). They are growing at a 15-25% rate annually and have extremely healthy free cash flow. This looks to be an extremely healthy business. It trades at a trailing multiple to earnings of 22, so it isn't exactly hidden from Wall Street. I think they will continue to chug along and outpace the S&P average as they outgrow those larger companies. They pay a nice dividend to boot and are sitting on a $6.00 per share cash hoard that could be used to strategically grow the company through acquisitions. Sweet looking outfit. Outperform.

The music department travels, spanish club, french class, school travel has gone crazy. I only see demand increasing...

I found this stock using MTF CAPS. Testing my #2 use of CAPS (playing with 5 star rating stocks)

With today's parents wanting to give their children every possible advantage (often to the point of making their childrens' schedules more crowded that ever before), arranging travel for middle and high school students to broaden their intellectual and cultural horizons seems to be a growing business.

Additionally, the financials, at first blush, look to be in good shape. The top line, the bottom line, and cash flow are all growing nicely, and the balance sheet looks healthy (with no debt). I also like the fact that, so far as I can tell, only one analyst is covering the stock.