Online education stocks are catching the market’s eye as they have positioned themselves with the growing demand for remote learning and digital education solutions. This shift toward digital learning has turned a niche market into a booming industry.

With this momentum, online education companies that are well positioned, Graham Holdings Company (GHC), Grand Canyon Education, Inc. (LOPE), and Stride, Inc. (LRN), have been reshaping and making it the mainstream mode of education in the world.

According to Statista, the global market revenue of online education services is anticipated to reach $279.30 billion by 2029, exhibiting a CAGR of 8.6%. This market, accelerated by the pandemic, has been growing as new technologies are also being integrated into it.

Furthermore, the efficiency and appeal of online education are being improved by technological innovations, including AI-powered personalized learning, virtual reality (VR) classrooms, and advanced learning management systems. The global EdTech market is projected to reach $598.82 billion by 2032, growing at a CAGR of 17.1%.

Given this backdrop, let’s analyze the fundamentals of three featured Outsourcing – Education Services stocks, beginning with #3.

Stock #3: Graham Holdings Company (GHC)

GHC is a global diversified education and media holding company. It operates through six segments: Kaplan International; Kaplan Higher Education; Kaplan Supplemental Education; Television Broadcasting; Manufacturing; and Healthcare and Automotive. 

On August 8, the company paid its shareholders a quarterly dividend of $1.72 per share. GHC pays an annual dividend of $6.88, which translates to a yield of 0.94% at the current share price. Moreover, its dividend payouts have increased at a CAGR of 4.4% over the past three years.

In terms of the trailing-12-month cash per share, GHC’s $31.98 is significantly higher than the $2.48 industry average. However, its 9.48% trailing-12-month EBITDA margin is 14% lower than the industry average of 11.45%.

For the six-month period that ended on June 30, 2024, GHC’s operating revenues increased 9.4% year-over-year to $2.34 billion, while the company’s Education segment reported operating revenue of $845.50 million, indicating an 8.4% growth from the prior-year period.

GHC’s adjusted net income came in at $107.32 million, up 5.8% year-over-year, while its adjusted income per share grew 12.9% from the year-ago value to $23.99.

Analysts expect GHC’s revenue for the third quarter (ending September 2024) to increase 10.6% year-over-year to $1.23 billion, while its EPS for the same period is expected to grow 46.5% from the prior year’s period to $15.31.

The stock has gained 28.7% over the past year and 15.5% over the past nine months to close the last trading session at $732.27.

GHC’s stance is apparent in its POWR Ratings. The stock has a B grade for Value and Stability. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Among the 19 stocks in the A-rated Outsourcing – Education Services industry, it is ranked #11. Click here to see the additional GHC ratings (Growth, Momentum, Sentiment, and Quality).

Stock #2: Grand Canyon Education, Inc. (LOPE)

LOPE is an education services company that primarily serves colleges and universities. It develops technological solutions, infrastructure, and operational processes to provide services to its institutions on a large scale and offers technological and academic services.

The stock’s trailing-12-month net income margin of 21.88% is 381.5% higher than the industry average of 4.54%. Similarly, its 22.10% trailing-12-month ROTA is 444.6% above the industry average of 4.06%. Also, its trailing-12-month levered FCF of 17.20% compares favorably to the industry average of 5.14%.

During the second quarter that ended on June 30, 2024, LOPE’s service revenue increased 8% year-over-year to $227.46 million. The company’s operating income came in at $42.72 million, reflecting an increase of 20.5% from the prior-year quarter.

Its non-GAAP net income amounted to $37.32 million and $ $1.27 per share, reflecting 21.9% and 25.7% year-over-year increases, respectively. In addition, its adjusted EBITDA increased by 22.6% year-over-year, amounting to $58.53 million.

Looking ahead, LOPE anticipates full-year service revenue for fiscal year 2024 to fall between $1.026 billion and $1.034 billion, and operating margin is anticipated to be in the range of 26.7%-27.2%. The company also projects non-GAAP income per share to range from $7.88 to $8.07.

The consensus revenue estimate of $239.68 million for the fiscal third quarter (ending September 2024) represents an 8% increase year-over-year. The consensus EPS estimate of $1.47 for the same quarter indicates a 16.7% improvement year-over-year. The company has an impressive surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

Over the past year, the stock has surged 23.4%, closing the last trading session at $137.41.

LOPE’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It also has an A grade for Sentiment and a B for Quality. Within the same A-rated industry, it is ranked #9 out of 19 stocks. Click here to see LOPE’s ratings for Growth, Value, Momentum, and Stability.

Stock #1: Stride, Inc. (LRN)

LRN, a technology-based education service company, provides proprietary and third-party online curriculum, software systems, and educational services worldwide. The company serves public and private schools, charter boards, consumers, employers, and government agencies.

On September 5, LRN launches Road2Teach, a new teacher program, in Indiana. This new program will offer two non-degree-granting programs to help aspiring teachers transition to teaching and pass their teacher certification exams. This program has two sections: Elementary Education program and Secondary education program. The new program is set to expand the company’s offerings.

LRN’s trailing-12-month ROCE and ROTA of 19.23% and 10.63% are 67.8% and 162.1% higher than their respective industry averages of 11.47% and 4.06%. Likewise, its trailing-12-month asset turnover ratio of 1.11x is 11.7% above the industry average of 0.99x.

LRN’s revenues for the fourth quarter, which ended on June 30, 2024, increased 10.5% year-over-year to $534.18 million. Its adjusted operating income rose 36.4% from the year-ago value to $87.89 million.

The company’s attributable net income amounted to $62.78 million, representing a 44.8% increase from the same period last year, and its attributable net income per share for the quarter increased 40.6% year-over-year to $1.42. Also, the adjusted EBITDA came in at $112.09 million reflecting an increase of 26.3% from the prior year quarter.

Street expects LRN’s revenue for the first quarter of fiscal 2025 (ending September 2024) to increase 5.4% year-over-year to $506.09 million. Moreover, its EPS estimate of $0.26 for the same period indicates a significant year-over-year growth. In addition, it surpassed the consensus revenue estimates in each of the trailing four quarters, which is excellent.

LRN shares have surged 84% over the past year to close the last trading session at $79.49.

It’s no surprise that LRN has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Growth. Within the Outsourcing – Education Services industry, it is ranked #8 out of 19 stocks.

Click here to see the other ratings of LRN for Value, Momentum, Stability, Sentiment and Quality.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

LOPE shares were trading at $137.10 per share on Monday morning, down $0.31 (-0.23%). Year-to-date, LOPE has gained 3.83%, versus a 15.64% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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