Fueled by educational technology, the rapid transition to online education systems has surfaced as a potent trend with no signs of abating. Given this backdrop, quality education stocks QuantaSing Group Limited (QSG), Universal Technical Institute, Inc. (UTI), and Graham Holdings Company (GHC) could be wise portfolio additions now.
The shift from traditional classroom learning to online platforms, a change expedited by the COVID-19 pandemic, is forecasted to boost the education industry’s growth trajectory significantly.
A contributing factor to this development has been the growing popularity of not only physical books orderable online but also e-books. The U.S. education market is projected to grow at a CAGR of 4.5% through 2028, potentially reaching around $2.30 trillion.
Furthermore, the advent of artificial intelligence (AI) has marked a novel frontier for educators, offering unique possibilities to interact with students in ground-breaking ways. Specifically, generative AI can augment the learning experience by comprehending students’ needs, inclinations, and learning trajectories by scrutinizing substantial data.
Considering these conducive trends, let’s take a look at the fundamentals of the three best Outsourcing-Education Services stocks, starting with number 3.
Stock #3: QuantaSing Group Limited (QSG)
Based in Beijing, the People’s Republic of China, QSG is engaged in the provision of adult learning courses. The company’s primary business is to provide individual adult learners with online courses of various brands and marketing and management services for corporate customers.
On September 18, QSG acquired Kelly’s Education, an online language education platform based in Hong Kong. This notable business venture signifies QSG’s journey into the worldwide online education market and the language learning sector. After the finalization of the transaction, Kelly’s Education is set to be a fully owned subsidiary of QSG.
On September 12, QSG announced its live e-commerce business yielded impressive results. For August 2023, the company’s live e-commerce business generated RMB13.30 million ($1.82 million) in Gross Merchandise Value (GMV).
QSG’s trailing-12-month gross profit and levered FCF margins of 87.29% and 11.63% are 146.3% and 128.3% higher than the industry averages of 35.45% and 5.09%, respectively. Moreover, its trailing-12-month asset turnover ratio of 3.37x is 236.2% higher than the industry average of 1x.
In terms of forward non-GAAP P/E, QSG is trading at 5.92x, 58.5% lower than the industry average of 14.25x. The stock’s forward Price/Sales multiple of 0.24 is 71.4% lower than the industry average of 0.83.
For the fiscal fourth quarter that ended June 30, 2023, QSG’s revenue stood at $114.23 million, up 31.7% year-over-year. Its gross profit stood at $98.22 million, up 36.6% from the year-ago quarter. The company’s adjusted net income attributable to QSG and net income per ordinary share stood at $12.49 million and $0.07.
For the fiscal year ending June 2024, QSG’s revenue and EPS are expected to increase 14.6% and 220.9% year-over-year to $485.42 million and $0.35, respectively.
The stock declined 7.5% intraday to close its last trading session at $2.09.
QSG’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Sentiment. In the A-rated Outsourcing-Education Services industry, it is ranked #9 out of the 20 stocks.
To see additional POWR Ratings for Growth, Value, Momentum, Stability, and Quality for QSG, click here.
Stock #2: Universal Technical Institute, Inc. (UTI)
UTI is a workforce solutions provider of transportation, skilled trades, and healthcare education programs. It offers certificate, diploma, or degree programs under various brands. It provides manufacturer-specific advanced training programs, manufacturer or dealer-sponsored training, and offers programs for welding and CNC machining.
On September 19, UTI collaborated with TravelCenters of America (TA) to provide Diesel and Auto tech students with career opportunities. This should bode well for the company.
UTI’s trailing-12-month gross profit margin of 54.40% is 53.5% higher than the industry average of 35.45%. Its trailing-12-month CAPEX/Sales of 10.72% is 233.2% higher than the industry average of 3.22%.
In terms of forward EV/Sales, UTI is trading at 0.99x, 12.4% lower than the industry average of 1.12x. The stock’s forward Price/Sales multiple of 0.47 is 43.2% lower than the industry average of 0.83.
For the fiscal third quarter that ended June 30, 2023, UTI’s revenue stood at $153.29 million, up 51.8% year-over-year. Its adjusted EBITDA stood at $11.45 million. As of June 30, 2023, UTI’s total current assets stood at $164.48 million, compared to $135.95 million as of September 30, 2022.
For the nine months that ended June 30, 2023, the company’s net cash provided by financing activities stood at $85.05 million, up 452.6% year-over-year. For the same period, its cash, cash equivalents, and restricted cash increased 55.6% from the year-ago quarter to $114.08 million.
Street expects UTI’s revenue and EPS to increase 50% and 133.3% year-over-year in the fiscal fourth quarter ending September 2023 to $165.93 million and $0.07, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and revenue estimates in three of the trailing four quarters.
The stock gained 49.4% over the past year to close its last trading session at $8.35. Over the past three months, the stock has gained 23.7%.
UTI’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
UTI has a B grade for Growth, Value, and Sentiment. Within the Outsourcing-Education Services industry, it is ranked #8.
Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, and Quality. Get all ratings of UTI here.
Stock #1: Graham Holdings Company (GHC)
GHC operates as a diversified education and media company, and its segments include Kaplan International; Kaplan Higher Education; Kaplan Supplemental Education; Television Broadcasting; Manufacturing; Healthcare; and Automotive.
Recently, GHC partnered with Sri Manakula Vinayagar Medical College, one of India’s leading institutions, to train new doctors, improve medical education outcomes, and bolster clinical readiness.
On September 21, GHC partnered with Rutgers Law School to provide all students with free prep courses for the bar exam. The company will also provide the school with curriculum support to benefit all students throughout their Rutgers journey. These strategic collaborations should bode well for the company.
On September 7, the company declared a regular quarterly dividend of $1.65 per share, payable on November 2. It pays an annual dividend of $6.60 per share, translating to a dividend yield of 1.13%. Its four-year average yield is 1.12%. GHC’s dividend payments grew at a CAGR of 4.4% over the past three years.
GHC’s trailing-12-month EBIT and levered FCF margins of 9.16% and 6.90% are 23.4% and 35.5% higher than the industry averages of 7.42% and 5.09%, respectively. Its trailing-12-month net income margin of 5.08% is 15% higher than the industry average of 4.42%.
In terms of forward EV/Sales, GHC is trading at 0.74x, 34.5% lower than the industry average of 1.12x. The stock’s forward Price/Sales multiple of 0.63 is 24.5% lower than the industry average of 0.83.
For the fiscal second quarter that ended June 30, 2023, GHC’s operating revenue stood at $1.11 billion, up 18.4% year-over-year. Its operating income stood at $58.06 million, up 47.6% from the year-ago quarter. For the same quarter, its adjusted net income and income per common share stood at $61.55 million and $12.97, up 3.2% and 7.5%, respectively.
Street expects GHC’s revenue to increase 6.8% year-over-year in the fiscal third quarter ending September 2023, to $1.08 billion. For the same quarter, its EPS is expected to be $7.90. The company surpassed consensus revenue estimates in each of the trailing four quarters.
The stock gained 9.4% over the past year to close its last trading session at $585.86. Over the past three months, the stock has gained 2.7%.
GHC’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
GHC has a B grade for Growth, Value, Stability, and Sentiment. It is ranked #5 within the same industry.
Click here for the additional POWR Ratings for GHC (Momentum and Quality).
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GHC shares were trading at $585.86 per share on Monday afternoon, up $2.76 (+0.47%). Year-to-date, GHC has declined -2.23%, versus a 14.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...
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