The shift towards online learning and technology-enabled education is expected to continue and accelerate in the coming years, creating a promising investment opportunity. Companies that offer cutting-edge education technologies are well-positioned to benefit from this trend and deliver steady returns to investors.
Based on the current market trends and the potential for growth in the education industry, investors might find it worthwhile to consider investing in companies such as Adtalem Global Education Inc. (ATGE), Stride, Inc. (LRN), and Benesse Holdings, Inc. (BSEFY).
During the pandemic, the education industry witnessed a major transformation as educational institutions shifted from offline to online learning. In addition, from budget cuts and teacher shortages to declining enrolments and inadequate access to technology, the business of running educational programs became increasingly stressful.
However, the rise of digital technology has created new opportunities for education providers to reach students in new and innovative ways, expanding access to education and making it more convenient and flexible for learners.
The E-Learning market is estimated to hit approximately $848.12 billion by 2030, growing at a CAGR of 17.5%. Furthermore, the U.S. education market is projected to reach $1.5 trillion by 2028, at a CAGR of 4.3% over the forecast period 2022-2028.
Furthermore, global expenditures from governments, companies, and consumers are forecasted to reach $7.3 trillion by 2025, while EdTech spending is expected to grow to $404 billion by 2025 from $227 billion in 2020.
As these trends continue to shape the education landscape, companies that can capitalize on them will likely see significant growth and generate impressive returns for their investors.
With that being said, let’s look at the above-mentioned stocks in detail:
Adtalem Global Education Inc. (ATGE)
ATGE is engaged in providing workforce solutions through its three segments: Chamberlain; Walden; and Medical and Veterinary. Each segment offers services such as degree and non-degree programs in the nursing and health professions postsecondary education industry, online certificates, bachelor's, master's, and doctoral degrees.
ATGE’s revenue increased marginally year-over-year to $369.08 million in the third quarter that ended March 31, 2023. The company’s operating income rose 80.4% from the year-ago value to $59.43 million, while its non-GAAP adjusted net income grew 24.7% from the prior-year quarter to $51.56 million. Also, its non-GAAP adjusted EPS increased 34.5% from the year-ago value to $1.13.
For the fiscal year 2023, the company expects its revenue to come in between $1.40 billion and $1.45 billion, while its adjusted earnings per share is expected to be between $4.05 and $4.20.
Streets expect ATGE’s EPS and revenue to amount to $0.97 and $356.43 million for the current quarter ending June 30, 2023. For the fiscal 2024 first quarter (ending September 2023), EPS and revenue are expected to increase by 3.4% and 0.2% year-over-year to $0.91 and $355.11 million, respectively. Moreover, it surpassed the revenue and EPS estimates in each of the trailing four quarters.
Also, ATGE’s revenue, EBITDA, and EBIT grew at CAGRs of 11.2%, 18.1%, and 11.9% over the past three years, respectively. Likewise, its total assets have grown at a CAGR of 5.5% in the same period.
Over the past year, the stock has gained 47.6% to close the last trading session at $41.65.
ATGE’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Sentiment, and Quality. In the 21-stock B-rated Outsourcing - Education Services industry, it is ranked first. To see additional POWR Ratings for ATGE for Value, Momentum, and Stability, click here.
Stride, Inc. (LRN)
LRN is a technology-based education service company that provides proprietary and third-party online curriculum, software systems, and educational services to facilitate individualized learning for students, primarily in kindergarten through 12th grade (K-12).
LRN’s total revenue increased 11.5% year-over-year to $470.28 million for the third quarter that ended March 31, 2023. The company’s adjusted operating income increased 15.5% from the year-ago value to $80.22 million, while its attributable net income grew 29.2% and 27.5% from the prior-year quarter to $55.46 million and $1.30 per share, respectively. Also, its adjusted EBITDA increased 15% from the year-ago value to $103.89.
In April, the company raised its revenue forecast and tightened its adjusted operating income forecast for the fiscal year 2023. Revenue is projected to be in the range of $1.81 billion to $1.83 billion, up from the previous forecast of $1.78 billion to $1.82 billion, while adjusted operating income is expected to be between $193 million and $200 million, from $180 million to $200 million previously.
Analysts expect LRN’s revenue and EPS for the fourth quarter (ending June 2023) to increase 1.2% and 38.5% year-over-year to $460.70 million and $0.91, respectively. Moreover, it surpassed the EPS estimates in three of its trailing four quarters and the revenue estimates in each of its trailing four quarters, which is promising.
Over the past three years, LRN’s revenue and net income have grown at CAGRs of 20.7% and 69.5%, while its EPS improved at a CAGR of 67.7% over the same period.
The stock has gained 21.1% over the past six months and 31.7% year-to-date to close the last trading session at $41.18.
It’s no surprise that LRN has an overall rating of B, which equates to Buy in our proprietary rating system. It also has a B grade for Growth and Value. Within the same B-rated industry, it is ranked #5 of 21 stocks.
In addition to the POWR Ratings we stated above, we also have LRN’s ratings for Momentum, Stability, Sentiment, and Quality. Get all LRN ratings here.
Benesse Holdings, Inc. (BSEFY)
Headquartered in Okayama, Japan, BSEFY provides educational, nursing care, and childcare services in Japan and internationally. The company operates through three segments: Education Business in Japan; Nursing Care and Childcare Business; and Kids & Family Business.
On March 15, the company announced a share transfer agreement to acquire all issued shares of Kyoto Rakusai Yobikou Co., Ltd., which operates Rakusai Shingaku Kyoushitsu prep school and other tutoring and education businesses for elementary, junior high, and senior high school students mainly in Kyoto City.
Following the share acquisition on April 28, Kyoto Rakusai Yobikou became a consolidated subsidiary of BSEFY. This acquisition should bolster the company’s operative capability.
During the nine-month period that ended December 31, 2022, net sales and operating income amounted to ¥308.92 billion ($2.29 billion) and ¥20.98 billion ($155.56 million), respectively. The company’s attributable net income grew 29% year-over-year to ¥11.99 billion ($88.95 million), while its EPS came in at ¥124.43, up 28.9% year-over-year.
Analysts expect BSEFY’s revenue to be $774.13 million for the fourth quarter (ended March 31, 2023); and increase by 3.1% year-over-year in the current quarter (ending June 30, 2023) to $767.13 million. Its total assets grew at a CAGR of 1.3% over the past three years.
BSEFY’s shares have lost 2% over the past month to close the last trading session at $14.53.
BSEFY’S solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It also has a B grade for Value and Stability. In the same industry, it is ranked #3 out of 21 stocks. Click here to see the other ratings of BSEFY for Growth, Momentum, Sentiment, and Quality.
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ATGE shares were trading at $41.24 per share on Monday afternoon, down $0.41 (-0.98%). Year-to-date, ATGE has gained 16.17%, versus a 8.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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