Stride (NYSE: LRN) is a strong participant in the burgeoning online education arena and presents a promising investment opportunity. Due to the pandemic-triggered restrictions, the company has seen a surge in its growth rate from FY21 onwards, with revenue essentially doubling since. The company’s robust financials are underpinned by long-term contracts, complemented by a strong balance sheet and an ambitious growth strategy.
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The stock is up over 89% in the past year and demonstrates positive momentum. The shares trade at a relative discount to industry peers, making this a compelling investment option in the education space.
Stride’s Scalable Business Model
Stride is a dominant player in the U.S. educational service industry and offers a wide range of virtual learning options and workforce training courses. The company’s business is highly scalable, allowing an increase in enrollments to significantly boost its profit margins and earnings, which are on a robust upward trajectory.
Stride operates through two primary business units: General Education and Career Learning. The General Education unit offers virtual instruction for grade 12 students, generating revenue from school districts or state funding based on student enrollment. The Career Learning unit focuses on job training and skills enhancement services tailored to middle-and high-school students and adults, primarily in high-demand sectors such as healthcare and technology.
Industry projections suggest a bright future for this industry. The U.S. online education market is estimated to be worth $87.5B in FY24 and is projected to grow to $144.3B in FY29, a CAGR of 10.52%.
Stride’s Recent Financial Results
In the third quarter of 2024, Stride exceeded earnings expectations, reporting revenue of $520.84 million, beating analysts’ estimates of $507.18 million and showing a notable jump compared to the $470.3 million reported in the same quarter of 2023. The high revenue performance was attributed to solid enrollment trends. The company also surpassed earnings-per-share estimates, posting an EPS of $1.60, compared to expectations of $1.43.
As of the end of the quarter, the company’s cash and cash equivalents and marketable securities stood at $570.7 million, up from $545.5 million reported as of June 30, 2023.
Management has also revised its guidance for the Fiscal year 2024. Revenue is projected to fall between $2.025 billion and $2.040 billion, while adjusted operating income is expected to range from $280 million to $290 million.
What Is the Price Target for LRN Stock?
Analysts following the company have been bullish on the stock. For example, BMO Capital analyst Jeffrey Silber, a five-star analyst according to Tipranks ratings, recently raised the price target on the shares from $72 to $73 while keeping an Outperform rating, noting the Q3 earnings beat and segment growth re-accelerating.
Stride is rated a Strong Buy overall based on four analysts’ recommendations and recently issued price targets. The average price target for LRN stock is $73.75, representing an upside of 4.61% from current levels.
The stock has been on an upward trend, climbing 16% year-to-date. It sits at the upper end of its 52-week price range of $35.61 – $73.33 and shows ongoing positive price momentum, trading above the 20-day (69.08) and 50-day (67.79) moving averages. Shares trade at a relative discount, with an EV to EBITDA of 8.32x compared to the Education & Training Services industry average of 10.45x.
Stride in Summary
Stride presents a promising investment opportunity in the thriving online education sector. With the trend towards e-learning set to continue, the company’s scalable model, robust financial health, and ambitious growth strategy offer compelling reasons for investment consideration. The upward momentum in the stock, coupled with its trading at a discount relative to industry peers, makes this a compelling opportunity for value investors.
