Janison Education (ASX: JAN): A further share price decline to 70 cents is possible

Behzad Golmohammadi Behzad Golmohammadi, February 22, 2022

Growth in the market for online education to slow down

Janison Education Group Limited (ASX: JAN) provides assessment and learning platform solutions in Australia and internationally. The company operates in two segments, Assessment and Learning. The Assessment segment implements and operates a platform for the provision of digital exam authoring and testing. Customers are national education departments, tertiary institutions and independent educational institutions. The Learning segment operates a learning management platform that manages the content and learning programs for corporate and government clients. Janison Education Group Limited was founded in 1998 and is based in Sydney, Australia.

COVID-19 lockdowns led to a massive rally in JAN’s share price. We believe the easing COVID situation reduces the growth prospects for online education businesses. The uptrend in JAN’s share price is broken and we think it’s time for a further correction in the price.

 

Janison Education took full advantage of COVID-19 lockdowns

JAN’s share price enjoyed a 480% increase from its pandemic low of 25 cents in March 2020 to $1.45 in November 2021. This spectacular share price performance was due to the positive market sentiment for online education businesses. Janison Education’s business model was set to benefit from the long-lasting school closures and management was active in expanding the company’s market share.

 

Janison Education

Janison Education, Daily Chart in Semi-log Scale (Source: Metastock)

 

❶ An outlook update by JAN signals stronger than expected revenue growth for 1HY21.

❷ OECD (Organisation for Economic Cooperation and Development) accredits JAN as the sole provider of PISA (Program for International Student Assessment) for schools in Australia.

❸ OECD accredits JAN as the sole provider of PISA for schools across the UK.

❹ Preliminary 1HY22 results show a $1.7m loss for the period.

 

From a technical analysis point of view, the price action following the release of the 1HY22 results indicates conviction on the side of sellers.

 

Students are returning to school

The COVID situation now seems to be under control following the global vaccine rollouts. Hospitalisation rates are decreasing, which is a promising sign as to the effectiveness of the vaccines, in our view. Students are returning to schools, and there are talks in the media on the importance of in-person education on students’ growth and mental health. This all, in our view, means less business for JAN.

The long-term uptrend in the share price (the green line on the chart) was broken in early February 2022 as the momentum behind the stock has been faltering since December 2021. This is a technical indicator that the sentiment on the stock is shifting from bullish to bearish.

 

Janison needs to show some profits

Janison Education announced its 1HY22 preliminary results on 14 February 2022 and reported a net loss of $1.7m. The company had noticeable revenue growth in the last three years and recorded a revenue of $33.8m over the last twelve months. This revenues growth, however, was offset by increasing operating costs.

The situation with COVID is easing and we believe that the rate of growth in the market for online education will slow down. Consequently, so will the rate of revenue growth for JAN.

After the massive increase in its share price, we believe JAN needs to justify its market capitalisation of $252m by showing some profits, or at least by revenues much bigger than $34m. However, the company has failed to generate profits after two years of school closures and remote education. Therefore, we believe that JAN’s stock is overvalued right now.

 

Our expectations for JAN’s share price

The big black candle formed on 17 February 2022 confirmed the bearish sentiment on the stock, in our view. We can now assume that the correction in the share price has begun.

Based on our technical analysis, targets for the share price in order are at 38%, 50% and 61% Fibonacci levels of the primary uptrend from the low of 25 cents to the high of $1.45. These Fibonacci levels coincide with support levels at $1.00, 85 cents and 70 cents, i.e., we see further  downside risk to the current price.

A break back above the trendline (the green line on the chart) can be used as a stop-loss. The price level at which this trendline will be broken is approximately $1.35. From a technical analysis perspective, a break above this level signals the return of bullish sentiment on the stock.

 

 

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