When ChatGPT burst onto the AI scene earlier this year, the narrative around online learning and training was very clear. AI was coming for your business, because why in the world would someone pay for training, when they could get education and training for free from an AI chatbot.
Only one problem, knee jerk reactions to new technologies on Wall Street are VERY often dead wrong. And so it was with the prognostication that AI would be the death knell for companies like Lincoln Educational Services (LINC), Perdoceo Education (PRDO), and Stride (LRN).
Maybe if you’d asked those on Wall Street that said ChatGPT would replace training companies, if they would want their nurse, or the person who built their Tesla (TSLA) to be trained by actual experts, or just ChatGPT, they would have rethought that statement. Lincoln Educational Services (LINC) does both, as well as offer many other hands-on technical training programs.
Lincoln recently signed a partnership with Tesla to establish a Tesla EV training center at its campus in Columbia, MD. The partnership will ensure that the number 1 EV maker in the U.S. will have service technicians to service all of those brand spanking new EVs.
Talking about the EV training, Scott Shaw, Lincoln’s CEO said, “Our intention at Lincoln Tech is to become the leading provider of EV Automotive Technology training. Broadening our partnership with the brand driving the EV industry is an invaluable step toward reaching that goal.”
And if you happened to note the burnout in healthcare services caused by the pandemic…how could you not, it was constantly in the news…Lincoln is there to train a new cohort of nurses and physician assistants for a market deeply in need of workers. This strategy of training people who are in the trenches, and do useful things with their hands, is paying off for LINC.
In its latest quarter the company reported revenue grew almost 10% YoY, with new student starts increasing almost 18%. Lincoln now has $95 million in cash and cash equivalents, and NO OUTSTANDING DEBT. (Huge in the current interest rate environment.)
On top of earnings last month Lincoln also raised its full year outlook for revenue and earnings for the rest of 2023. No wonder the company ranks as an A in our POWR Ratings and has a rating of over 98% in the category of Sentiment.
Another way to beat the AI competition is to integrate AI into your own tools, which is exactly what primarily online based Perdoceo Education (PRDO) has done.
The majority of Perdoceo’s clientele isn’t what you immediately think of when you think of college education. The company is going after already established adults with a career, family, and obligations outside of just going to class. 68% of PRDOs students are over the age of 30, with 76% of students looking to further their business career.
While the company has four physical campuses, the majority of its students are taking classes online. Perdoceo has been focusing on making the online experience engaging and enjoyable and is using AI to enhance that experience.
But they are also using AI tools to increase the efficiency of their own operations related to student enrollment, as well as back office and customer service processes. And it’s working. In its latest quarter PRDO declared its first ever quarterly dividend of $.11 per share.
The company can make that dividend decision because it has $578 million in cash or cash equivalents, and like Lincoln Education, no debt…seems to be a theme with these education companies.
In its latest quarter Perdoceo increased revenue YoY by 11.3%, and operating income by a healthy 41.7%. The company is actually the number one company in our Outsourcing-Education industry, has an A POWR Rating, and outshines 99.79% of the stocks in our database. It ranks particularly high on the Quality factor.
While the Covid pandemic scars are slowly disappearing, one gaping hole that is still being addressed is the impact on learning that “study from home” had on our young people.
Stride (LRN) is working to close that learning gap by bringing young people back up to speed in their high school and pre-secondary school studies. For example, the company recently announced a grant from the state of New Jersey to deliver high impact, targeted online tutoring to students who specifically experienced academic difficulty due to Covid.
In its latest quarter Stride reported record revenue and earnings, with a 6.2% increase in YoY revenue, and an 18.6% increase in EBITDA. The company has a PE ratio just over 15, and a price to sales ratio of only .87.
Stride has an overall B rating in our POWR Ratings, with its highest rating not surprisingly coming in the Value category.
As is often the case, knee jerk Wall Street reactions can be profitable for investors who can swim against the tide. These three education and training companies are a great example of that maxim at work. And even as AI continues to advance, Lincoln Educational Services (LINC), Perdoceo Education (PRDO), and Stride (LRN), will continue to lead the profitable education charge.
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LINC shares were trading at $8.50 per share on Wednesday afternoon, up $0.11 (+1.31%). Year-to-date, LINC has gained 46.80%, versus a 11.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA. More...
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