Distance Learning Scale And Medical Education Will Support A Stronger Long Term Outlook

Catalysts

About Vitru

Vitru is a Brazilian higher education group focused on distance learning, hybrid undergraduate programs, medical schools and continuing education.

What are the underlying business or industry changes driving this perspective?

• Scale in distance learning, with 816,900 students in this segment and total enrollments of 898,000, gives Vitru broad reach in a part of higher education that benefits from growing demand for flexible, lower cost formats, which can support top line expansion and operating leverage over time.
• Lower dropout and higher student engagement in distance learning, supported by retention and student support initiatives, point to more stable cohorts and a longer average length of study, which directly supports recurring revenue and helps protect margins.
• Hybrid and distance programs, now 71% of revenue at BRL 397m in Q3 2025, are aligned with the ongoing shift toward online and blended education delivery, which typically carries higher fixed cost absorption and can support EBITDA margin resilience around the current 39% level.
• The medical school unit, already roughly 15% of revenue with room for course maturation, is positioned in a degree area where demand for health professionals tends to be structurally strong, which can help mix shift toward higher average tickets and support earnings quality.
• Continuing education, with adjusted growth of 12.6% for the first nine months on a comparable basis, taps into long term demand for professional upskilling, offering additional products to the existing student and alumni base and providing incremental revenue with attractive contribution to net margins.
• Vitru reports robust free cash flow of BRL 452m and a net debt to EBITDA ratio of 2.1x, which, combined with a longer debt duration and reduced banking spreads, increases financial flexibility to keep investing in academic quality and infrastructure that can support revenue growth and sustain adjusted net margin progression.

Assumptions

This narrative explores a more optimistic perspective on Vitru compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Vitru's revenue will grow by 15.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.0% today to 21.5% in 3 years time.
• The bullish analysts expect earnings to reach R$669.2 million (and earnings per share of R$55.66) by about January 2029, up from R$60.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 728.3x on those 2029 earnings, up from 27.2x today. This future PE is greater than the current PE for the US Consumer Services industry at 17.1x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.82%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Distance learning remains the core of Vitru, but new enrollments in this segment fell by around 3% to 4% in Q3 2025 while the company also accepted a 4.1% decline in average ticket to keep courses accessible. This points to a long term risk that growth increasingly depends on retention rather than fresh intake and that competitive pressure keeps pricing power limited, both of which could weigh on revenue and constrain margin expansion over time.
• Management repeatedly highlighted that education is a business with high fixed costs and that 2025 net revenue came in below the internal budget. This already created some pressure on gross margin even with tight cost control. If sector growth slows or Vitru cannot lift prices in line with inflation, the fixed cost base could cap operating leverage and limit further gains in EBITDA margin and earnings.
• The new regulatory framework for hybrid and distance programs is expected to be phased in over 3 to 4 years and will require ongoing investment in hubs, laboratories and course adjustments. Although the company views this as an opportunity, higher long term capex and operating requirements at the hub level could dilute returns from hybrid programs and compress net margins if price increases or volume do not keep pace.
• Vitru is deliberately prioritizing higher quality, more engaged students and maintaining a higher average ticket than many competitors that operate closer to R$200 to R$250. This may support cohort quality but also risks losing volume to smaller and medium sized players that are using aggressive discounting in the current competitive cycle. If this persists it could slow revenue growth while marketing and retention spending stay elevated, limiting earnings growth.
• The balance sheet has improved, with net debt to EBITDA at 2.1x and a medium term target of 1.5x, but leverage is still material at about R$1.7b and the company continues to rely on debenture refinancing and lower banking spreads. Any shift in credit conditions or a setback in free cash flow conversion, for example from weaker working capital gains or smaller tax benefits than management expects, could slow deleveraging and increase interest expense, which would pressure net income and free cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Vitru is $25.0, which represents up to two standard deviations above the consensus price target of $20.75. This valuation is based on what can be assumed as the expectations of Vitru's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.0, and the most bearish reporting a price target of just $16.81.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be R$3.1 billion, earnings will come to R$669.2 million, and it would be trading on a PE ratio of 728.3x, assuming you use a discount rate of 14.8%.
  
• Given the current share price of $9.07, the analyst price target of $25.0 is 63.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.