Lubin Investment · Blog

Afya Limited (AFYA): a dirt-cheap Brazilian gem

2026-06-11 ·

Afya trains Brazil's doctors, a trade protected by licenses that are nearly impossible to obtain. The company meets my 10 quality criteria, grows its cash 28% a year, and trades at barely more than one year of that cash. Quality this rare is unusual. The price even more so. Here is how I read it.

The company that makes Brazil's doctors

The first time I saw Afya's price in my data, I checked twice. A company that ticks all my quality boxes and trades at barely more than one year of cash almost never happens. So I wanted to understand what was hiding behind it.

Afya is private medical education in Brazil. Two businesses, really. On one side, medical schools: the company trains students for six years, who pay tuition year after year. On the other, digital platforms for doctors already qualified: exam prep, continuing education, clinical decision tools. In short, it walks a Brazilian doctor from the first day of school to the end of their career.

That positioning has a rare virtue. In Brazil, opening a medical school is not an entrepreneur's choice, it is a permit the state grants very sparingly. Licenses are scarce, tightly controlled, and a new rival cannot simply decide to launch. Afya spent years acquiring and running these permits. That is exactly the kind of barrier I look for.

Is it a good company? (quality)

I never rate a company on gut feeling. I run it through 10 fundamental quality criteria: is it truly profitable, are its sales and cash growing, does it turn profit into real cash, is its debt manageable, does it use capital efficiently? A company that meets them all scores 10 out of 10. That is rare by design. Afya gets there.

One number is enough to feel the machine: its free cash flow margin reaches 32%. Free cash flow is the money that truly stays in the bank once every bill is paid (salaries, buildings, taxes, investments). A 32% margin means that out of every 100 reais of sales, 32 end up as genuinely available cash. Most companies top out near 10. Its net margin, accounting profit relative to sales, comes in at 20%.

The growth is there too. Revenue rises 17% a year, and cash per share 28% a year. That gap is no accident: when cash per share climbs faster than sales, the company is gaining efficiency and not diluting its shareholders by issuing shares left and right. That is the kind of detail that separates healthy growth from inflated growth.

Afya's real treasure: its moat

A clean balance sheet never convinces me on its own. What I look for is the moat: the competitive ditch, what stops a rival from taking the spot. The word comes from a castle's moat. The wider the ditch, the harder the fortress is to attack.

At Afya, the moat rests first on regulatory barriers. Medical school licenses are scarce and tightly controlled by the Brazilian state. A competitor cannot decide overnight to open a school against it: it needs a permit nobody hands out easily. That scarcity protects Afya's positions far better than a brand or a patent would.

The second pillar is recurring revenue. A medical student commits for six years and pays tuition year after year. Once enrolled, they do not switch schools midway. So Afya knows a large share of its revenue years in advance. It is the predictability of a subscription, applied to a degree.

The third pillar is structural: Brazil is short of doctors, and demand for training does not fade. As long as the country seeks to care for its population better, the need for trained students remains. This engine does not depend on a fad or an economic cycle, it is anchored in demographics.

On return on capital, this moat shows up in a number I always check: Cash ROCE reaches 20%. This measure answers a simple question: for every real put into the business, how much cash does it spit back each year? Here, 20 cents per real per year. That is double the threshold I consider decent, and a sign that capital truly works.

What exactly is my 10/10 score?

My quality score says nothing about the stock price. It judges the business alone. Afya meets my 10 criteria: profitability, growth in sales and cash, conversion of profit into cash, balance sheet strength, capital efficiency. Very few companies reach this score, and you will find the full list in my ranking of companies rated 10 out of 10.

One detail speaks volumes about the honesty of the accounts: the profit-to-cash conversion comes in at 1.55. In other words, the cash generated exceeds accounting profit by half. A company that turns its profits into genuinely real money, and then some, is not dressing up its results. That is exactly what I want to see, because accounting profit is easier to manipulate than cash.

Quality first, price second (and separately)

Here is the rule I never break: I separate two questions most people confuse. One: is this a good company? Two, entirely apart: is this the right price? A great company bought too expensive is still a bad investment. A mediocre company, even dirt cheap, stays mediocre. On Afya, the first question is settled. The second remains.

To measure price, I look at the P/FCF (price to free cash flow): the share price divided by the cash the company truly generates each year. A P/FCF of 1.1 means that at the current pace, you pay barely more than one year of that cash. The lower it is, the cheaper it is. Afya trades at 1.1 times its free cash flow. That is the lowest multiple in my entire quality ranking, and most solid companies trade ten to twenty times higher.

To make sure this is not a momentary mirage, I also look at where this price sits in the stock's own history. Today, Afya trades at the 29th percentile of its own past valuation. Plainly: 71% of the time over the last five years, the stock traded more expensive than today. It is not an absolute low, but it sits clearly in the bottom of its usual range. The stock is worth about 14.69 dollars.

Why does the market dump such a fine machine?

Because the market does not pay for a company, it pays for a story, and Afya's story worries on three points. This is Brazil, and a price this low never falls from the sky: it pays for a risk others refuse to take. Let us be honest about those risks.

First risk: regulation of student seats. In Brazil, the state decides how many future doctors can be trained, through programs like Mais Medicos. A political decision can widen or freeze the number of medical school seats. So the same regulatory barrier that protects Afya can also turn against it if the government changes course. That is the double-edged sword of any regulated business.

Second risk: acquisition debt. Afya grew by buying schools, and that leaves loans on the balance sheet. Its net debt represents about 1.7 years of free cash flow. In plain terms, the company could repay all its net debt in under two years of cash. That is a level I consider reasonable, but it is a line to watch, especially in a country where interest rates can climb fast.

Third risk: the Brazilian real (BRL). Afya earns its revenue in reais, but the stock trades in dollars. If the real weakens against the dollar, the value of those earnings mechanically melts for a dollar investor, even if the company does great on the ground. It is a currency risk you bear without being able to control it.

The real debate (and the trap)

The whole thesis comes down to one question: do you believe these Brazilian risks justify such a crushed price, or that the market is overdoing its fear? If you think Afya keeps its regulatory moat and structural demand, the stock is abnormally cheap. If you believe a political cut to seats or a fall in the real could break everything, this low price is a trap, not a windfall.

A P/FCF of 1.1 is never a bargain in itself: it only is if the quality holds and the risks do not all materialize at once. That is exactly why I judge quality before price, and price separately. If you want to compare Afya with other discounted but solid cases, look at my ranking of undervalued stocks.

How I read Afya, without getting carried away

Deep down, Afya has the double nature that draws me in: a quality rated 10 out of 10, and a price among the lowest I have ever seen on a company of this caliber. You almost never see both in the same line. But this discount has a reason, and that reason is called Brazil. The low price is not a gift, it is the payment for a very real country risk.

So I do not rush in. I treat Afya as what it is: an excellent company, at a price that only makes sense if you accept its share of emerging-market risk. To dig deeper, you will find the detail of the criteria, the comparables and the valuation on the Afya analysis page, and you can revisit my full methodology to understand how I separate quality from price.

Judging whether a company is good, then at what price to buy it, separately, in a few seconds and for any stock: that is exactly what I wanted to be able to do. So I built it.

FAQ

What does Afya actually do?

Afya is a private medical education player in Brazil. It runs medical schools, where students pay tuition for six years, and digital platforms for doctors already in practice (exam prep, continuing education, clinical tools).

What does a P/FCF of 1.1 mean?

The P/FCF (price to free cash flow) divides the share price by the cash truly generated each year. A P/FCF of 1.1 means you pay barely more than one year of that cash. The lower it is, the cheaper it is. It is the lowest multiple in my entire quality ranking.

Why does Afya score 10/10?

It meets my 10 fundamental quality criteria: profitability (net margin 20%, free cash flow margin 32%), growth in sales (17% a year) and cash (28% a year), profit-to-cash conversion (1.55) and capital efficiency (Cash ROCE 20%). My score judges the business alone, not the price.

What are Afya's risks?

Three mainly: Brazilian regulation of medical school seats (the Mais Medicos program), which can turn against it; debt tied to its acquisitions (about 1.7 years of free cash flow); and exposure to the Brazilian real, which can melt the value of earnings for a dollar investor.

Is a P/FCF this low a bargain?

Not automatically. A very low price can pay for a real risk, here Brazilian country risk. It is only attractive if the quality holds and the risks do not all materialize together. This is not investment advice, do your own research.

Voir l'analyse AFYA sur Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I have analyzed stocks through their fundamentals for several years and invest my own money with this method. I codified it into a tool that judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).