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Stride (LRN) Shares Outperform Industry YTD: Here's Why

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Stride, Inc.’s (LRN - Free Report) shares have rallied 54.4% so far this year while the Zacks Schools industry has plummeted 45.5%. It has been riding high on technology-based products and services, focus on kindergarten through 12th grade students as well as career oriented programs. Also, prudent investment in other businesses is commendable.

This solid stock performance can also be attributed to its impressive surprise history. Notably, earnings surpassed analysts’ expectation in 11 of the last 12 quarters.

On the contrary, other industry bigwigs like American Public Education, Inc. (APEI - Free Report) , Strategic Education, Inc. (STRA - Free Report) and New Oriental Education & Technology Group Inc. (EDU - Free Report) have declined 6.7%, 17.9% and 58% in the said period. Post the COVID-19 pandemic, the overall industry has been grappling with low enrollments and increased costs related to technology enhancement, marketing and advertising as well as other overhead costs.

Zacks Investment ResearchImage Source: Zacks Investment Research

Let’s take a look at the factors supporting growth of this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Focus on Technology-Based Products and Services

Stride primarily focuses on technology-based products and services, which enable its clients to attract, enroll, educate, track progress as well as support students on a scalable basis. These products and services are designed to help learners reach their educational goals through inspired teaching and personalized learning. Stride primarily provides services to public and private schools, school districts as well as charter boards. Also, it offers solutions to employers, government agencies and consumers through private schools operated by the company.

Its core focus on kindergarten through 12th grade students for subjects like math, english, science and history help them build a basic foundation of knowledge. These programs provide an alternative to traditional school options and serve students needs such as safety concerns, increased academic support, scheduling flexibility, physical/health restrictions or advanced learning.

It is also focused on developing skills for grown up students and adult learners to enable them enter careers in high-growth, on-demand industries including information technology, business as well as health services. The company also offers post-secondary Career Learning programs through its Galvanize, Inc., Tech Elevator, Inc. and MedCerts, LLC subsidiaries. These programs include skills training in data science and software engineering, healthcare and medical fields, technology staffing along with talent development.

Investment in Other Businesses

Stride laid out various investment plans including partnerships with other businesses and organizations. The collaborative investments will be made with the intention of designing education programs aimed at teaching new skills to employees, introducing additional curriculum and expanding geographic footprint.

In November 2020, it acquired MedCerts — an e-learning and training technology platform. MedCerts students participate in online, hands-on career training courses in healthcare and medical fields as they prepare for more than a dozen national healthcare certifications. The acquisition has expanded the company’s post-secondary skills training in healthcare and medical fields. It also plans to use MedCerts’ curriculum to create appropriate content for high school students. Additionally, it has acquired Tech Elevator — an intensive in-person and virtual live remote education provider.

Growth Potential

Stride has solid prospects for fiscal 2021. Earnings for fiscal 2021 are expected to grow 171.7% year over year. Also, its earnings are expected to rise 20% in the next three-five years. Revenues are also expected to increase 46.9% year over year in fiscal 2021.

A solid Value Score of B is another reason for investors to believe in its fundamentals.

Cheaper Than Industry Returns

Stride is a great pick for investors as it is cheaper than the industry. The trailing 12-month price-to-earnings multiple for the company is 20.62, cheaper than the industry’s 47.68.

Also, its return on equity (ROE) is indicative of growth potential. Its ROE of 9% compares favorably with the industry average of 4.8%, implying that it is efficient in using shareholders’ funds.

Increased Costs May Put Pressure on Near-Term Results

Despite undertaking various initiatives and actions, Stride’s bottom line is likely to be under pressure due to additional costs associated with COVID-related health protection of employees and customers. Although management has initiated several changes in operations and administrative functions to mitigate the financial impact of the pandemic, variable expenses are likely to surge on account of additional costs related to providing a safe environment.

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