About Geo Group
Enter the GEO Group.
Headquartered in Boca Raton, Florida, we will be the first to admit that the GEO Group is a company that is engaged in some controversial lines of business.
Let’s just say it’s not in the business of flipping burgers, as this is a company that can essentially be thought of as a real estate company with a firm focus on owning and/or managing private prisons, border detention centers and mental health facilities worldwide, spanning across the world as the company has operations within and around the United States as well as Australia and South Africa.
We suppose it is now pretty clear why some might view this company as being a somewhat controversial one, especially with all of the rumblings and discussions spurring around mass immigration and incarcerations around the globe, naturally lending itself to working quite closely with governments worldwide.
While we aren’t going to step on any of the plethora of controversial topic landmines, we do understand that these are sensitive matters and for those who consider themselves to be more moral-centric investors, this is a company that one might want to look into further and do some soul searching on prior to even considering an investment in the company through its publicly traded shares (NYSE: GEO).
For the fully objective, solely return-oriented investor, it can be said that while the GEO Group does operate in the cyclical real estate sector, we do think that given recent and current migration patterns inbound to the United States and the current state of affairs legally in and around the United States as it pertains to law and order, if any company is to stand to gain from continued increases in these instances, it is this one, for better or for worse.
Furthermore, the more folks that try to enter the United States (legally or illegally) and the more that are detained or arrested (regardless of context or legality), the more organic demand for Geo Group’s developments and services, as one of the company’s primary revenue drivers includes its contracts with the U.S. Federal Bureau of Prisons (BOP), Immigration and Customs Enforcement (ICE) as well as the United States Marshals Service (USMS), and, as we have touched on in previous stock analysis articles, it’s hardly ever a bad thing for companies to have established deals with well known government agencies, as said agencies are more than likely going to continue abiding by and honoring these current (and future) contracts given the current state of affairs, not to mention the fact that once any sort of government agency partners with and develops an effective track record with a company in the private sector, they likely aren’t going to part ways anytime soon.
All of this being said, we acknowledge the controversy and urge prospective shareholders to consider their own values, whether they take a more societal stance or are purely driven by potentially generating a profit, while pondering an investment in this company, and for any other company for that matter.
That’s a little bit on the Geo Group and here’s a little more on the company’s core financials and other relevant metrics and ratios.
Geo Group’s stock financials
With a present share price of $8.64, a market capitalization of $1.09 billion, a price-to-earnings (P/E) ratio of 9.18 and no annually distributed dividend offered to its shareholders at the moment, the Geo Group isn’t off to the worst of starts, as its shares (NYSE: GEO) appear to be trading at a more than modest discount, as it is commonly held that a price-to-earnings ratio of 20 indicates that a stock is trading at exactly fair value and subsequently anything less than 20 implies that a company’s shares are trading below that of its actual, fair value, or, in other words, are undervalued.
Therefore, the Geo Group’s stock appears to be trading at a healthy discount, perhaps offering interested prospective shareholders an opportunity to buy while the gettin’ is still good.
However, in order to determine if this might really be the case, it would serve us well to continue our financial investigation of the company in question.
As it relates to the company’s balance sheet, the Geo Group’s executive team is in charge of taking care of and tending to $3.76 billion in terms of total assets as well as nearly $2.6 billion in terms of total liabilities, which, for a real estate firm, which is essentially what Geo is, this isn’t a bad overall balance sheet breakdown at all, as the company’s total assets outweigh the aggregate amount of its liabilities by a sufficient amount (in our eyes, at least) and Geo likely (but not certainly, yet, as we will find out later within this stock analysis article) generates a fair amount of cash flow through its developments, thus making it not all that difficult to hew down its debt(s) and other liabilities in the long run, but again, long-term debt(s) are just part of the deal when it comes to real estate operators, which we have also seen in other previous stock analysis articles.
Moving right over to the state of the company’s income statement, the Geo Group’s total annual revenues since 2018 have been arguably the most steady we have seen out of quite literally all of our previously analyzed companies, as each year its revenues stood at just about $2.3 billion, which is typically an inherent perk of being a more prominent real estate developer and operator, as revenue tends to flow at a steady pace, so long as tenants continue paying their rent and/or the operator continues maintaining and perhaps expanding its global footprint and portfolio.
Onto the company’s cash flow statement, Geo’s net income and total cash from operations figures (also referencing since 2018) have been consistent (and positive) as well, with, for instance, its total cash from operations ranging between a relative low of $274 million (2018) and $442 million (2020), which is certainly far from being a resoundingly bad sign, as it is just how real estate companies such as this one should be performing, at least from the perspective of consistency through the thick and the thin of the recent national and global economic backdrops.
Geo Group’s stock fundamentals
Thus, it can be found and confirmed that profitability, primarily on a trailing twelve month (TTM) net profit margin basis isn’t all too challenging to Geo, but it is still in a rather competitive state with the industry’s listed average (as displayed on TD Ameritrade’s platform), as the company’s listed TTM net profit margin is in a technically more dominant yet still largely competitive state at 5.45% to the industry’s respective average of 4.42%, which we view as a general positive, however, this is objectively how it should be for a company with a relative leadership position such as this one, therefore, the box is still certainly checked but it isn’t like Geo Group shouldn’t be generating this sort of figure in the first place.
As it pertains to the company’s listed TTM returns on assets and investment(s), as also displayed on TD Ameritrade’s platform, Geo Group has found itself being in a rather unattractive state, with, as an example, its TTM return on assets listed at 3.23% to the industry’s comparable average of 8.60%, perhaps a byproduct of the company having a larger geographical footprint inside and outside of the United States, as it might take some more time for such as a large, scaled operator to generate competitive TTM returns on these fronts given the sheer scale and magnitude of its operations and developments worldwide, especially, given that many of its competitors are more than likely regional players with a smaller scale operations, benefiting them in the respect of generating returns from their operations, particularly through their assets and investments.
Should you buy Geo Group stock?
Conscience first, money second, some might say.
Whatever it is you actually say, an undeniable fact of the matter is that this company is an extraordinary (in a literal sense) and unique company with a well established niche and set of proven capabilities.
For better or for worse, the Geo Group is a large, controversial operator that you may or may not like, however, its business model holds its own regardless of the state of the greater overall economy, its stock (NYSE: GEO) appears to be trading well below what it is actually worth, its balance sheet is in a comfortable position, its year-over-year (YOY) annual revenues as of recent have been consistent as all get out, not to mention its relatively solid TTM net profit margin, although its TTM returns on both assets and investment(s) are admittedly lacking.
In devising some sort of rating for this company and its shares at this current juncture in time and maintaining our objectivity mandate, it would be best to render this company’s stock a “buy” rating, from our vantage point.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.