As with virtually every sector, the novel coronavirus has had a crippling impact on education stocks. The academic year was cut short due to the pandemic, and classes shifted online.
Online education has been a disruptive force in the industry for quite some time but is now more apparent than ever. Hence, smart investors have invested heavily in education stocks this year and will continue to do so for the foreseeable period.
The event has been a transformation for digital education. Though some variables need sorting, it is clear that online education is here to stay. The closure of educational institutes and long-distance learning techniques will lead to a structural shift in the industry.
Before the crisis hit, the online education system grew handsomely and was worth $18.66 billion last year. It was previously projected to reach $350 billion by 2025, but the pandemic has considerably accelerated growth.
Here are three education stocks to buy today:
Education Stocks to Buy: Chegg (CHGG)
Chegg is an online educational service that provides educational support services for college and university students. Its services include tutor support, textbook solutions, math solver, job placements and other unique services.
With the lockdown restrictions in place, the company benefited from the education system shutdown. As a result, Chegg stock has grown exponentially by over 132%.
The company recently reported its stellar third-quarter results, where subscribers grew 69% year-over-year to 3.7 million. Revenues were at $154 million, representing an increase of 64% year-over-year. Services revenue, in particular, increased 72% year-over-year. Unfortunately for the company, its net loss was $37.1 million compared to a net loss of $11.5 million in the same period last year.
The company’s full-year outlook is $626 million to $628 million, with gross margins of 68% to 69%. Revenues could surpass $800 million by 2021, and its EPS could be $1.75 per share.
New Oriental Education (EDU)
New Oriental Education is a Chinese private educational services provider. In particular, it offers language training, preparatory courses, assessment tests, admission training, along with primary and secondary education.
The company has significantly benefited from the tailwinds in the education sector spurred along with the pandemic. Hence, EDU stock’s six-month returns is a massive 47.5%.
In its most recent quarter, revenues came in better than estimates, dropping 8% when analysts were expecting an 11% to 15% drop. Similarly, margins dropped 6.1% year-over-year on the back of the lower revenues. However, its non-GAAP net profit dropped 19.8%, which was an improvement from the 49% decline in the previous quarter.
Despite the hiccups in its recent quarter, the company’s prospects in the coming year look impressive. It will be ramping up the development of its online-emerging-offline (OMO) segments.
Furthermore, it is investing heavily in its K12 tutoring segment, expecting a healthy increase in students. It is also focusing on expanding its online presence under Koolearn; Koolearn is increasing its platform and courses in taking advantage of the shift online.
K12 Inc. (LRN)
K12 Inc., a digital education company, offering curriculum, software, and educational services online to students. Before the pandemic, many would consider it a run-of-the-mill investment, but it has substantially picked up during the pandemic. As a result, K12 stock’s six-month return is at an impressive 25%.
The third quarter was exceptional this year for the company, as its revenues grew 44.3% year-over-year. Its general and career learning segments grew by 34.4% and 142.5%, respectively, with double-digit increases in enrollments. Earnings per share were 30 cents compared to a loss of 25 cents last year. Covid-19 will continue to spur growth and push enrollment numbers even higher.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.