The academic landscape is transforming with the surge of e-books and online learning, presenting new opportunities for growth in the U.S. education industry. However, challenges such as higher advertising expenses and the emergence of generative artificial intelligence systems demand thoughtful strategies to ensure prosperity. Leading companies like Stride, Inc., Strategic Education, Inc. (SEI), and American Public Education, Inc. (APEI) are anticipated to thrive through prudent management and strategic initiatives in the burgeoning Schools industry.
Industry Description
The for-profit education sector caters to diverse academic needs, offering a wide array of undergraduate, graduate, and specialized programs in finance, accounting, healthcare, technology, and more. These companies provide career-oriented courses, childcare services, and even specialize in offerings like yoga classes and related retail merchandise as well as fitness classes.
3 Trends Shaping the Future of the Schools Industry
Rising Demand for Online Education & Healthcare Professionals: the ascendancy of online education and the shortage of healthcare professionals mark crucial trends driving the industry’s growth. Companies are leveraging online platforms to meet the surging demand for virtual education, while also addressing the acute shortage of skilled healthcare professionals.
Cost-Saving Efforts, Increasing Use of Technology & Introduction of More Programs: Resilient company strategies involve cost-cutting measures, leveraging technology, and diversifying program offerings to enhance student outcomes and address the needs of working adults.
Higher Rates & Generative AI systems: As the Federal Reserve adopts a hawkish stance, companies are bracing for increased costs of debt offerings. Meanwhile, the rise of generative AI systems presents a notable threat to industry growth. The proliferation of AI technology may disrupt traditional business models and student employment post-graduation.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Schools industry holds a strong position within the broader Consumer Discretionary sector, ranking in the top 10% of Zacks industries. Notably, the industry’s earnings growth potential is gaining confidence, with analyst estimates for 2024 showing a 4.8% increase since October 2023.
Industry Outperforms Sector & S&P 500
Over the past year, the Zacks Schools industry has significantly outperformed the broader Consumer Discretionary sector and the S&P 500 composite. With a collective gain of 28.6%, compared to the sector’s 6.5% rise, the industry demonstrates robust potential for investment.
One-Year Price Performance
Industry’s Current Valuation
When evaluating the industry’s forward 12-month price-to-earnings ratio, it presents a compelling multiple for gauging the valuation of for-profit education companies.
Thriving School Stocks Have Investors Flocking With High Hopes
Investors today are keeping a keen eye on the thriving school stocks as the industry gains momentum with solid growth potential. The industry’s current P/E ratio, at 22.6X, has outstripped the S&P 500’s 19.9X and the sector’s 16.6X, signaling a rosy picture for potential investment.
Historical Analysis: A Rollercoaster Ride for the Industry
Over the past five years, this industry has seen a tumultuous journey – trading at a high of 66.9X, dropping to a low of 14.3X, and maintaining a median of 30.7X. The volatile nature of this niche has drawn the attention of several investors, who see the potential for substantial gains on their investments.
3 Competitor Stocks Worth a Closer Look
Three stocks in this industry currently stand out with a Zacks Rank #1 (Strong Buy) or 3 (Hold) and offer solid growth potential.
American Public Education: APEI
An American Public Education, based in Charles Town, WV, is making waves with its strategic initiatives. By offering affordable tuitions and an array of online programs, the company has driven growth. Increased demand for affordable online higher education and nursing programs positions American Public as a promising player in the industry. With a Zacks Rank #1, the stock boasts a substantial gain of 134.8% over the past six months, outdoing industry averages. The estimated earnings of 54 cents per share reflect an impressive 115.8% improvement from a year ago. With a VGM Score of A, this stock presents an intriguing investment opportunity.
Stride: LRN
Stride, based in Reston, VA, has capitalized on higher enrollment and increased revenue per enrollment, resulting in a commendable 58.2% gain over the past six months. The upward estimate revision for fiscal 2024 earnings, expected to grow by 34.7%, further reinforces the stock’s appeal. With a Zacks Rank #1, Stride is striking a chord with investors.
Strategic Education, Inc.: STRA
Strategic Education, Inc., based in Herndon, VA, is leveraging a strong demand environment and improved enrollment trends to its advantage. With a Zacks Rank #3, the stock has surged by 33.7% over the past six months, and its projected earnings growth of 27.9% for 2024 adds to its allure.
Eye on the Future: Are These Stocks Worth the Investment?
This collection of top-performing school stocks has captured the attention of investors looking for lucrative opportunities. As history has shown, the industry, with its rollercoaster journey, presents a landscape of high-risk, high-reward investments. Will these stocks prove to be the next big winners? Only time will tell.
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