Is GEO Stock a Buy, Sell or Hold?

The GEO Group (NYSE:GEO) is a private prison and mental health facility operator with 100 facilities spread across several countries.

With the private prison market heating up as the US prepares to detain and deport potentially millions of undocumented immigrants, GEO and companies like it are attracting massive investor attention.

Is GEO a buy today, or has the stock already risen too high for new investors to add to their portfolios?

Unpacking GEO’s Unusual Valuation

One of the stranger aspects of GEO at the moment is its slate of value multiples. The company’s stock trades at relatively modest ratios of 1.5x sales and 2.9x book value. Its price-to-earnings ratio, however, is astronomically higher at 144.0. This is largely because the company’s net income has been trending steadily downward since peaking in 2022.

Share prices, however, have skyrocketed in recent months. In large part, this is due to the election of Donald Trump in November of last year.

On a 12-month basis, shares of GEO have risen by about 125%, and the vast majority of those gains have accrued since last year’s election. With prices rising rapidly while trailing earnings remain depressed, it’s not terribly unusual that GEO’s P/E ratio has reached such a high level.

With that said, there is still quite a lot of optimism around GEO’s performance over the next year. The analyst consensus price target for the stock is $41.20, implying an upside of over 50% from the most recent price of $27.36.

Are Private Prisons a Good Investment?

To fully understand GEO, it’s important to look at the broader question of whether private prisons will be a good long-term investment.

Over the next 10 years, the correctional system market as a whole is expected to approximately double. Much of this surge is expected to be accounted for by private prison facilities of the type GEO operates.

In the United States, private prison companies are quite likely to benefit from federal policies over the next few years. The industry expects to see growth due to the need for detention facilities to support the current administration’s ambitious deportation plans.

This same phenomenon was on display in Donald Trump’s first term, during which higher demand driven by immigration enforcement benefited the private prison industry. While these policies are undoubtedly controversial, it seems very likely that they will boost revenues and profits at companies like GEO going forward.

Overall, private prison companies are likely quite solid investments for the coming several years. With governments struggling to keep up with space requirements and looking for ways to manage costs more effectively, private solutions will likely remain in high demand.

Given that GEO accounts for nearly 30% of the correctional facilities market in the US, it’s likely that this already entrenched company could be a good choice within a growing market.

GEO Financials Look Way Better Than Expected

Last year, the company reported total revenues of $2.4 billion and net income of $31.9 million. Net income was substantially lower than in the year-ago period, falling from a 2023 total of $107.3 million. The top line, though, was largely flat compared to the year-ago period.

Some good news on the back of so-so financials is that management is looking to grow detention and transportation capacity. They plan to invest a total of about $70 million to cater to expected supply hikes, mostly with the intent of providing facilities and services for immigration enforcement.

Management announced that $9 million has been allocated and, by the time the project is wrapped up, approximately 32,000 beds for detainees will be available to ICE.

Another piece of good news is how the leadership team have addressed the prior debt burden. They have reduced long-term debt from a high of nearly $3 billion to only $1.7 billion as of the end of 2024. This debt repayment push has left GEO in a stronger financial position and given it more leeway to invest in building out the capacity forecasted.

With its high P/E ratio, much will obviously depend on how quickly GEO can expand its earnings over the coming years. Guidance for 2025 suggests that net income per share will be in the range of $0.74-$0.88. In 2024, per-share earnings were just $0.22. The top brass also expects revenues to climb again to $2.5 billion.

Is GEO Stock a Buy, Sell or Hold?

GEO stock is a buy in the eyes of analysts who have a consensus price target for the stock is $41.20, suggesting as much as 50% gain on the horizon.

The most obvious red flag associated with buying GEO is the possibility that earnings per share could grow slower than expected, leaving the stock trading at a rather high multiple to its earnings. The high guidance issued for 2025, however, could go some way toward mitigating this concern. Unless GEO greatly misses its own expectations this year, the P/E ratio could contract significantly in the fairly near future.

Another potential fly in the ointment for GEO in the long run is a change in US policy after the next election cycle. Democrats in the United States tend to be much less sanguine about private prisons than Republican administrations, and it’s unlikely that a future Democrat in the White House would continue the Trump administration’s stricter immigration policies. Such changes, however, would be very unlikely prior to 2028.

As a leader in a market that will very likely expand over the next few years, GEO is already attractive as a business. This appeal is bolstered by the fact that the company makes its money from government contracts that are largely resistant to economic downturns, recessions and consumer demand. With the stock market potentially due for a correction and US consumer confidence falling to multiyear lows on inflation fears, GEO could be a decent defensive stock.

While the price may look a bit high, GEO seems to have potential as a buy at the moment. The company has carved out a strong foothold for itself within its industry, and current trends suggest that demand for its facilities and services will remain quite robust for at least the next few years. If GEO can deliver anything like the earnings growth management projects, it’s quite possible that the stock will produce rather attractive returns.

Certainly, listening to management be so bullish during the earnings call and surprise analysts with an additional $1 billion contract that had not been baked into the numbers is evidence that the future may be brighter than the consensus has presently forecast.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.