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4 Factors Supporting Stride's (LRN) 69.5% Growth in YTD

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Despite the Zacks Schools industry’s significant fall this year, Stride, Inc. (LRN - Free Report) has been riding high, given solid technology-based products and services as well as a focus on kindergarten through 12th grade students. Career-oriented programs and investment in other businesses are adding to the bliss.

Shares of this leading education services company have surged 69.5% so far this year while the industry has plummeted 66.5%. In fact, industry players like Grand Canyon Education, Inc. (LOPE - Free Report) , American Public Education, Inc. (APEI - Free Report) , and Strategic Education, Inc. (STRA - Free Report) also declined 6.9%, 14.6%, and 21.7%, respectively, in the same period.

The stock’s solid performance can be attributed to its impressive earnings surprise history, having surpassed analysts’ expectations in 17 of the last 19 quarters.

Zacks Investment ResearchImage Source: Zacks Investment Research

Yet, Stride and other industry players have been grappling with low enrollments and increased costs related to technology enhancement, marketing and advertising as well as other overhead costs.

Let’s check out the factors supporting the solid prospects of this Zacks Rank #1 (Strong Buy) company. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rising Demand for Technology-Based Products and Services

After the COVID-19 crisis, the school industry is witnessing rising demand for online services. Stride has been benefiting from this pattern of demand. The company has been primarily focusing on technology-based products and services, which enable 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.

Focus on Kindergarten & Skill Development Courses to Diversify Services

Its core focus on kindergarten through 12th grade students for subjects like math, english, science and history helps them build a basic foundation of knowledge. These programs provide an alternative to traditional school options and serve student 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 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.

Business Investments Via Partnerships & Buyouts

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.

Strong Growth Potential

Stride has strong prospects for fiscal 2022 and 2023. Earnings for fiscal 2022 and 2023 are expected to grow 2.3% and 14%, respectively, year over year. Also, its earnings are expected to rise 20% in the next five years. It has an impressive VGM Score. A VGM Score of B, supported by a Value and Growth Score of B, is another reason for investors to believe in its fundamentals.

Cheaper Than Industry, Impressive 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 20.91, cheaper than the industry’s 28.68.

Also, its return on equity (ROE) is indicative of growth potential. Its ROE of 9.3% compares favorably with the industry average of 5.2%, implying that it is efficient in using shareholders’ funds.

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