Stride Outperforming Bright Horizons with Strong Growth Metrics

Consider the potential of Stride (NYSE:LRN), a digital K-12 education company that has shown remarkable performance with a projected 40% EPS growth, high double-digit enrollment growth, and an operating margin exceeding 15%. In contrast, Bright Horizons (NYSE:BFAM), a legacy early education and childcare provider, lags behind in key metrics. While BFAM trades at approximately 30x EBIT, Stride’s valuation sits at around 16x, indicating a disparity in market recognition. This has contributed to an impressive return of 120% for LRN over the past year, compared to a modest 5% return for BFAM.

Stride’s accelerated growth, efficient scaling, and higher earnings position it well in the marketplace. Despite these strengths, it remains undervalued, resembling a secondary market player. This mispricing often catches Wall Street by surprise. Investors might consider purchasing LRN during any market dips; however, focusing on a single stock, regardless of its potential, entails significant risks. To mitigate this risk while accessing robust growth potential, the High-Quality portfolio offers a diversified solution, having outperformed the S&P 500 with returns exceeding 91% since inception.

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Stride’s Metrics Showcase Strong Performance Against Bright Horizons

• Stride reported around 13% top-line growth over the last year compared to 11% for Bright Horizons.
• It boasts an operating margin of 15%, while BFAM’s margin is under 10%.
• Stride has lower debt levels and higher operational and free cash flow margins.
• Notably, Stride is priced significantly cheaper at about 16x EBIT compared to BFAM’s 30x.
• Additionally, Stride’s quarterly EPS growth accelerated to 42% year-over-year, compared to 31% a year earlier.

The advantages of Stride’s fully online education model further distinguish it from traditional childcare centers like BFAM, which face rising labor and facility costs. This trend is not unique to Stride. Grand Canyon Education (NYSE:LOPE), another digital education firm, is experiencing increasing investor interest, reinforcing the transition towards asset-light, high-margin education models.

However, investing in a single stock or a limited number of stocks can present substantial risks. For a more stable approach, the Trefis High Quality (HQ) Portfolio includes a diverse selection of 30 stocks, which have consistently outperformed the S&P 500 over the last four years. Why choose this approach? HQ Portfolio stocks have historically offered superior returns with reduced risk, lessening volatility compared to the benchmark index, as evidenced in HQ Portfolio performance metrics.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.