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Why Shares of Arco Platform Limited Gained 33.9% in March

Keith Noonan, The Motley Fool

What happened

Shares of Arco Platform Limited (NASDAQ: ARCE) gained 33.9% in March according to data from S&P Global Market Intelligence. The Brazilian education company's stock got a big boost following the release of fourth-quarter earnings and encouraging guidance. 

ARCE Chart

ARCE data by YCharts

Arco Platform reported earnings after the market closed on March 19, delivering sales and earnings that topped the market's expectations and promising guidance for 2019. Revenue for the fourth quarter climbed 73% year over year to reach 121 million Brazilian real, and adjusted net income for the period came in at $R43.4 million -- a big jump from the $R14.4 million adjusted profit it posted in the prior-year quarter. 

A boy next to a computer-generated image of a globe.

Image source: Getty Images.

So what

Arco Platform had its initial public offering last August, and shares are up roughly 37% from its closing price on the day of the company's market debut, thanks to impressive sales momentum. The company has a market capitalization of roughly $1.6 billion and trades at roughly 42 times this year's expected earnings and roughly 13 times expected sales, so while the company is growing very fast, expectations for more strong growth are also already factored into its stock price.

Now what

Because the use of education services tends to correspond with the academic calendar and schools need their systems set up beforehand, much of Arco Platform's business tends to be booked a year in advance. The company's expects bookings of R$440.9 million in 2019, an increase of 37% compared to 2018's academic calendar bookings. Investors can also look forward to the company growing its sales through acquisitions, as management has stated that it is looking for outside assets that can bolster its strength in education services. 

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.