Stride, Inc. (NYSE: LRN) is revolutionizing the education sector by offering online learning solutions for a wide demographic, from kindergarten through 12th grade, to adult learners seeking career advancement across various industries.
With a history of strong growth and strategic acquisitions, Stride represents a unique investment opportunity in the burgeoning field of online education. In this article, we will delve further into the company to ascertain if it is a buy.
A Decade of Strong Performance and Strategic Growth
Over the past decade, Stride has demonstrated significant growth, with its stock appreciating at a compound annual growth rate (CAGR) of 11.1%.
The company’s strategy involves reinvesting cash flows into stock repurchases and complementary acquisitions, focusing on expanding its educational offerings rather than distributing dividends.
Impressive Revenue Growth and Margin Expansion
Stride’s long-term revenue growth is remarkable, boasting an 18.4% CAGR from FY2004 to the current trailing revenues as of Q2/FY2024.
The COVID-19 pandemic and strategic acquisitions such as MedCerts and Tech Elevator further accelerated this growth, though Stride’s expansion is not solely attributed to these factors.
Recent quarters have shown sustained organic growth, indicating a promising future for the company. With expenses scaling in line with revenues, Stride has successfully leveraged operating margins, transitioning from single-digit GAAP operating margins in pre-pandemic years to a current trailing margin of 11.2%.
Continued Growth and Positive Outlook
Despite challenges in the General Education segment, Stride continues to grow, evidenced by a 10.1% year-over-year revenue increase in Q2/FY2024. The company’s guidance for FY2024 suggests a continuation of this growth trend, with expected revenues indicating a 9.7% increase.
This growth, combined with efficient margin scaling, underscores Stride’s solid market position and operational efficiency.
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Valuation Reflects Untapped Potential
Despite its impressive growth trajectory, Stride’s valuation remains attractive, with a forward P/E multiple significantly below its ten-year average.
The discounted cash flow (DCF) model, incorporating conservative growth estimates and a realistic approach to operating leverage, suggests a substantial undervaluation, presenting a compelling opportunity for investors.
Financial Stability and Low Debt Costs
Stride’s strategic management of debt, characterized by a remarkably low annualized interest rate, supports its growth initiatives without burdening the company with high financing costs.
The company’s prudent financial management and strong cash flow conversion underscore its fiscal health and operational efficiency.
Risk Considerations
Investing in Stride involves considering risks related to future growth, competitive pressures, and the potential impact of macroeconomic fluctuations.
However, the company’s innovative approach, established market presence, and strategic initiatives position it well to navigate these challenges.
Investment Conclusion
Stride’s successful track record in online education, combined with its strategic growth initiatives and attractive valuation, presents a compelling investment case.
The company’s focus on expanding its educational offerings and leveraging technology to enhance learning outcomes positions it for continued success in the evolving education market.
With solid fundamentals and a forward-looking growth strategy, Stride is poised for sustained expansion, making it a strong buy for investors seeking exposure to the online education sector.
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Faith is an enthusiastic freelancer and regular contributor to numerous finance blogs, creating valuable pieces to educate individuals on finance and fintech options. As a skilled writer, Faith has created content for diverse industries—if it exists, she’s likely written about it!
