The closure of schools across the nation as the coronavirus pandemic took its toll, left many wondering about the future of the education industry and school stocks. As students remained confined to their homes for an indefinite period, online education has become a lifeline for many institutions.
Thanks to the developments in technology, 4.9 million students across the United States can continue their education via e-learning. Many institutions moved their courses to a virtual environment where students could keep up with their lessons via video lectures, online seminars and tests.
This boost in online education has also resulted in a solid growth opportunity for companies in the online education space.
As virtual classrooms remain the norm for the foreseeable future, here are three school stocks that show some major upside potential:
School Stocks: Chegg (CHGG)
Chegg has always been a leader in the online education realm but the pandemic only increased its dominance. The Santa Clara, California-based tech company provides online educational resources in addition to e-textbook rentals and tutoring and homework assistance.
In other words, Chegg has all the key ingredients required for virtual education.
Chegg stock has been on the rise since the start of the pandemic and gained 78% in the last three months. This price rally is attributable to its better than expected first-quarter results that sent the stock price soaring by 32%. .
This was followed by second-quarter results that saw a lot of highlights for CHGG stock. Company revenue increased to $153 million, which was a 63% increase from the previous year. Net income was up to $10.6 million this quarter, which was a result of the platform’s rise in subscriber growth by 58%.
While it does not operate a virtual classroom setting, Chegg is in a unique position to benefit from the online education trend because it provides the tools required to enhance online learning. Chegg’s platform is likely to thrive regardless of the mode of education.
Given the platform’s stellar performance this past quarter, the company this school stock is definitely worth the investment. Although it is likely to face competition from other e-platforms, its strong bottom line will see the company through thick and thin.
K12 (LRN)
The shift to virtual classrooms has been a major win for investors who have put their money behind online education businesses. One such company is K12, a platform that enables physical classrooms to go online.
Since the start of the pandemic, K12 saw an unprecedented rise in its stock price going as high as 68% in July.
While many question the allure of online education platforms in the long term, arguing that a short-term bump in the stock price is not sustainable for a long period. It hasn’t stopped investors from getting behind these companies.
This is because the recent prominence of online education may address an untapped opportunity in the education industry. What started out as a desperate solution for the coronavirus pandemic may soon become the norm for some educational institutions.
K12 has a business model that caters perfectly to this need. The for-profit company provides learning tools, academic support and information technology for schools that are either fully or partially online. In its third quarter, K12 reached a milestone 1 million unique monthly visitors on its website in February and March.
With e-learning showing some major upside potential, investors have every reason to put their money in this industry. Analysts also believe that K12’s growing market creates a robust revenue opportunity for the company in the long-run. Moreover, the company is grossly undervalued in comparison to its peers, which could increase its stock price in the future.
With a business that is totally relevant in today’s corona-economy, K12 is a school stock that’s worth your investment.
Bright Horizons (BFAM)
The shift to a virtual classroom wasn’t just limited to universities and grade school, early education also made the move to e-learning. Bright Horizons, a pioneer in the early education system, well-known for its STEM programs saw a jump in its stock since the start of the pandemic.
The company has a worldwide presence and operates a brick-and-mortar childcare facility in addition to an online tutoring service. Bright Horizon’s stock price was bolstered with the shift to e-learning that increased the demand for its services.
Historically, Bright Horizon’s stock performance was several notches below its peers and wasn’t on any investor’s must-buy list. However, things took a turn for the better when the recent online education trend resulted in better than expected Q2 numbers.
According to Yahoo Finance, the company posted earnings of 74 cents per share in comparison to analysts’ expectations of 67 cents. Moreover, Bright Horizons also beat analyst revenue estimates by 42.5%, registering $293.77 million for the quarter.
After results were announced, the company’s stock price surged, relaying investor’s confidence in the future of the company. The early education provider expects 85% of its centers to be open by the end of September as well.
Given the company’s dominant presence in the education sector, we recommend you stay long on this school stock.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020. As of this writing, Divya Premkumar did not own any of the aforementioned stocks.
