Covid-19 has had a significant impact on education. Due to various levels of closure, states and institutions have followed different paths in terms of schooling. However, with increased vaccine rollout, in-person education will soon become the way forward once again. So, it would be wise for investors to start watching education stocks.
Returning to school should prove exciting for many young minds, but a number of students might also need additional tutoring to make up for lost time. On top of that, all students will likely need back-to-school materials. Regular school items will top most shopping lists. However, especially in the past year, students have relied more on technology — so, those kinds of supplies may appear on lists, too.
In fact, one report from Institute for the Future highlights, “By 2030, populations’ needs and resources will be orchestrated by self-learning, digital technologies, allowing humans to take the role of digital resource conductors.” Based on that, it seems likely that returning students will find themselves using (or needing) laptops and other smart devices.
Schools, parents and students will also have to balance social-distancing with in-person education. However, not all stocks will benefit from school becoming face-to-face again. The past year saw plenty of digitalization tailwinds. As a result, some of last year’s winning names may come under pressure this year.
So, with all that information, here are seven education stocks that deserve your attention:
- 2U (NASDAQ:TWOU)
- Bright Horizons Family Solutions (NYSE:BFAM)
- First Trust Nasdaq Cybersecurity ETF (NASDAQ:CIBR)
- Global X Education ETF (NASDAQ:EDUT)
- New Oriental Education & Technology (NYSE:EDU)
- Tal Education (NYSE:TAL)
- VanEck Vectors Retail ETF (NASDAQ:RTH)
Education Stocks to Watch: 2U (TWOU)
52-week range: $11.51 – $59.74
One-year price change: Up about 79%
First up on this list of education stocks is 2U, an education-technology company that enables colleges and universities to bring their degree programs online. It delivers solutions on a cloud-based, software-as-a-service (SaaS) platform. The firm generates revenue through subscription fees and most of its clients are based in the United States.
On Feb. 11, the company announced full-year and 2020 fourth-quarter results. For Q4, revenue increased 32% to $215.3 million. Net loss also improved by $6.9 million to $37.7 million. A year ago, the net loss had been $44.6 million. As of the fiscal year end, TWOU’s cash totaled $518.9 million.
Right now, the company’s 2021 guidance for revenue stands between $910 million and $945 million, implying 17% to 22% year-over-year (YOY) growth. However, the bottom line will still likely be in the red.
Given the recent declines in tech shares, TWOU stock could come under pressure soon. So, potential investors could see a drop toward the $35 level as a better entry point in this name.
Bright Horizons Family Solutions (BFAM)
52-week range: $64.23 – $182.49
One-year price change: Up about 4%
Bright Horizons Family Solutions mainly provides child care and early-education services. Back on Feb. 17, the group announced its final 2020 figures.
For the end of the year, total revenue was down by 28% YOY to $377 million. Additionally, adjusted net income was $22 million, a decline of 63% YOY. Diluted adjusted earnings per share (EPS) was down by 64% and came at 36 cents. Finally, BFAM’s cash and cash equivalents amounted to $384 million. In a section on the company’s Covid-19 response, CEO Stephen Kramer noted:
“As of December 31, 2020, 910 of our child care and early education centers were open, out of 1,014 centers we operate […] As this is a continuously changing environment, we cannot anticipate how long it will take for re-opened centers to reach typical enrollment levels and there is no assurance that centers currently open will continue to operate.”
Management has blamed the recent poor results on the disruption of the pandemic. As life starts to return to normal, however, we can expect Bright Horizons’ operations to improve.
Right now, BFAM stock’s forward price-earnings (P/E) and price-sales (P/S) ratios are currently 67.24 and 6.4, respectively. These point to a very rich valuation for this pick of the education stocks. So, investors might want to wait for a potential decline toward $130, where the margin of safety would be better.
First Trust Nasdaq Cybersecurity ETF (CIBR)
52-week range: $20.87 – $46.69
One-year price change: Up about 52%
Dividend yield: 1.11%
Expense ratio: 0.60% per year
Our next education-stocks discussion centers around an exchange-traded fund (ETF), the First Trust Nasdaq Cybersecurity ETF. As a fund, CIBR invests in leading cybersecurity names.
As you probably already know, digitalization (even in schooling) has become a huge catalyst in the past year. On top of that, ensuring the safety of data and records in cyberspace has also gained significance. CIBR stock plays off of both of these motifs.
Formed in July 2015, this ETF has assets under management of over $3.5 billion. About half of the fund is concentrated in its top ten holdings. CIBR currently has some 40 stocks, including cyberattack-solution provider Crowdstrike (NASDAQ:CRWD), cloud security platform Zscaler (NASDAQ:ZS) and networking giant Cisco Systems (NASDAQ:CSCO).
CIBR hit a record high in mid-February. Further, its price-book (P/B) and P/S ratios are 7.4 and 4.07, respectively. In March, short-term profit-taking may put pressure on businesses in the ETF, which could create a better entry point for long-term investors — possibly below $40. However, in the long-run, we can expect these businesses to see solid revenue growth.
Global X Education ETF (EDUT)
52-week range: $14.51 – $21.67
One-year price change: Up about 27% (since July 2020)
Expense ratio: 0.68%
The next pick on this list of education stocks is another exchange-traded fund, the Global X Education ETF. This fund provides exposure to global businesses that provide educational services, including online-learning and educational content for a variety of age groups.
EDUT — which has 38 holdings — tracks the returns of the Global Education Thematic Index. The sector allocation by weighting is Consumer Discretionary (29.6%), Industrials (27.1%), Information Technology (26.2%) and Communication Services (17%).
EDUT stock’s top ten holdings comprise about 66% of the fund’s total net assets, which stand at $12.6 million. Global X Education started trading in July, 2020. So, in other words, it’s a small and young fund without much trading history. However — with its top three companies being Tal Education, New Oriental Education & Technology and Chegg (NYSE:CHGG) — long-term investors could find value in this name at around $17. For EDUT, definitely consider buying the dips.
New Oriental Education & Technology (EDU)
52-week range: $102.01 – $199.74
One-year price change: Up about 45%
Founded in 1993, EDU stock represents the largest private-educational-services provider in China, the most populous nation worldwide. It serves students across a myriad of different age groups in several ways, including after-school tutoring, test preparation, language education and vocational training.
Back in late January, EDU announced its Q2 2021 financial results for the period ended Nov. 30. Revenue for the quarter increased by 13.1% YOY to $887.7 million. Non-GAAP net income was $69.1 million, an increase of 21.3%. Diluted EPS also increased from 36 cents to 43 cents. Finally, net operating cash flow for Q2 was $410.7 million. On the report, CEO Michael Yu commented:
“We are pleased to see the recovery of businesses for the autumn semester after the resumption of schools and learning centers since the end of September 2020. As the pandemic situation in China has been stabilized and effectively controlled during the quarter, our businesses in most of the cities resumed and managed to deliver encouraging results.”
This pick of the education stocks has forward P/E and P/S ratios of 47.63 and 7.69, respectively, pointing to a high valuation level. So, a potential decline toward $165 would improve the margin of safety of investors.
Tal Education (TAL)
52-week range: $45.15 – $90.96
One-year price change: Up about 44%
Tal Education is one of the top after-school tutoring companies for younger students in China. However, this company works across a variety of age groups — from pre-school level to high school — in both in-person and online class settings.
Tal announced its Q3 financial results on Jan. 21. Net revenues increased by 35% YOY to $1.1 billion, up from $829 million the prior year. Non-GAAP net income was $10.4 million compared to $49.7 million in the previous Q3. Non-GAAP diluted net income per American depository share (ADS) was 2 cents. For the fourth quarter, management now expects revenue to be between $1.17 billion and $1.2 billion.
The company’s forward P/E and P/S ratios are 77.52 and 11.02, respectively. Like EDU shares, TAL stock is expensive from a valuation standpoint. But the coming weeks could see a decline toward the $70 level, making this pick of the educational stocks much more enticing.
VanEck Vectors Retail ETF (RTH)
52-week range: $94.61 – $164.31
One-year price change: Up about 38%
Dividend yield: 0.64%
Expense ratio: 0.35%
My final choice for today’s article on educational stocks is another ETF, the VanEck Vectors Retail ETF. The fund provides access to firms involved in a variety of different retail businesses — from wholesale to e-commerce to direct mail and TV retailers as well as retailers of food and other staples.
So, how does this pick relate to educational stocks? As schools start reopening, most households will likely shop both online and in stores for supplies. Within that, consumers will likely buy more technological gadgets, electronic items and computers as well as stationery and clothing.
RTH stock, which represents 25 holdings, tracks the Mvis US Listed Retail 25 Index. Sector allocation by weighting is Consumer Discretionary (69.2%), Consumer Staples (21.6%) and Healthcare (9.2%). A little over 95% of the businesses in the ETF are from the United States. The rest are from China.
RTH’s top ten holdings comprise more than 72% of its total net assets, which stand at over $190 million. Some of those holdings include Amazon (NASDAQ:AMZN), The Home Depot (NYSE:HD), Walmart (NYSE:WMT), JD.com (NASDAQ:JD) and Costco (NASDAQ:COST).
The fund hit a huge high in early February, but the run-up in the share price — which started last spring — is overextended. So, March will likely see some profit-taking in this name. Long-term investors should consider buying those dips, especially if the price declines toward $140.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.