Stride has caught the attention of investors in recent months as a way to capitalize on the growing online education market. It is a for-profit education company that provides K-12 learning products and services. The company offers online school services that are meant to act as an alternative to in-person schooling.
Stride also offers curricula for teachers to use. The company offers its services mostly to local and state governments in need of online educational resources.
In addition to its K-12 curricula, Stride also offers career-based learning and ongoing education for adults. On this front, the company focuses on in-demand skills, such as technology and healthcare training.
The Bull Case for Stride
Stride is in a unique position to take advantage of trends that have emerged as a result of the COVID-19 pandemic. School closures have massively increased the demand for online K-12 classes. Meanwhile, 47 percent of American businesses report difficulty finding skilled workers amid an ongoing labor shortage.
As a provider of both virtual K-12 classes and adult career-oriented education, Stride is able to tap into the demand created by both of these ongoing trends.
The company’s recent history adds to its fundamentals to create a strong bull case.
Stride has beaten analysts’ consensus estimates several times over the past year, with an average of 69 percent upside over projected earnings.
Stride also enjoys a 40 percent market share in the K-12 online education space, positioning it for future growth if more classes shift to online formats.
Source: Unsplash
The Bear Case for Stride
Despite its advantages, the bull case for Stride isn’t ironclad.
Growth could be inhibited by teacher shortages, which affect Stride as much as they affect traditional schools. A return to more traditional models of education could also end Stride’s winning streak. Polls suggest that 79 percent of parents favor the return of in-person schooling.
Stride’s latest earnings report could also be a sign that the company’s steam is waning. Q3 earnings showed a loss of $0.15 per share. While the consensus estimate projected a loss, the reported loss was still $0.01 more than expected.
In 2020, Stride reported a positive Q3 EPS of $0.30.
Does Stride Have a Moat?
Stride offers a surprisingly strong moat thanks to its involvement in K-12 education and its outsized market share.
The online education market for K-12 schooling is relatively difficult for new companies to break into, and Stride’s established track record makes it a natural choice for schools exploring virtual learning options.
The company’s CEO, James Rhyu, has also teased the possibility of new product releases in the coming year. This shows that Stride will continue to innovate and adapt to the needs of the education market and will likely remain a dominant force in that market for the foreseeable future.
Stride Revenue Growth Remains Impressive
Stride has delivered fairly consistent quarterly revenue growth since it was founded in 2007.
Its first reported revenue was for Q4 2007, in which it generated $54 million. The most recent revenue report for Q3 2021 showed revenues of $400 million.
Stride’s revenue growth, however, was most prolific at the beginning of the 2020 school year, when schools were still largely shut down due to COVID-19 concerns.
Revenue skyrocketed from $269 million in Q2 2020 to $371 million in Q3. Growth has continued since, though at a much slower rate.
Stride Earnings Blip A Cause For Concern
Stride’s earnings growth has been far less consistent than its revenue growth.
Although it has beaten consensus estimates more often than not, the company has seen rocky growth in EPS over time. The company reported a loss of $0.15 per share in the most recent quarter. However, that report came after seven consecutive quarters of positive earnings, each of which outperformed the consensus estimate.
Like revenue, Stride reported disproportionately positive earnings growth at the start of the 2020 school year. In Q3 2020, the consensus estimate suggested a $0.34 loss per share.
However, Stride earned a positive $0.30 per share in that quarter. Combined with the revenue data, these earnings reports suggest that Stride’s recent successes were strongly linked to pandemic-related school closures.
Online Learnings Outcomes Threaten Stride
Although it certainly has potential, Stride also carries business-related risks.
The largest risk at the moment appears to be the possibility of a return to in-person learning as COVID-19 becomes a more manageable risk.
Rapid school reopening and an end to lockdown measures could halt Stride’s growth. Given the already discussed parent preference for a return to schools, online K-12 education may already have hit its high water mark.
A more general backlash against online K-12 learning could also harm Stride. Evidence suggests that online learning produces poorer educational outcomes than in-person instruction. This could be a problem for Stride, as parents looking at outcomes during the pandemic may be less likely to opt for virtual classes.
Stride Stock Forecast
Analyst price targets for Stride over the next 12 months range from $34 to $65, with a median of $45.
Notably, only the low estimate would constitute a loss of 6.6 percent.
The median target would represent a gain of 23.6 percent, while the high target would add 78.5 percent to the stock’s price. These numbers are based on targets from five analysts.
Is Stride Stock a Buy?
Taking all of these facts into account, Stride appears to be a mixed case. Strong earnings performance over the past two years, a dominant place in an emerging market niche and analyst forecasts showing strong upside with minimal downside all tend to the conclusion that Stride could be a buy.
However, the danger that Stride’s recent performance is purely a product of pandemic school closures introduces a higher level of risk.
Teacher shortages could also imperil the company’s ability to grow, even if school reopenings don’t have a substantial negative effect on its revenues.
Overall, Stride is a somewhat risky stock that offers decent upside potential. The asymmetrical risk suggested by analyst ratings makes it a decent possibility for the risk-tolerant investor looking to tap into the growing online education market.
For more conservative investors, however, Stride may be too uncertain. A discounted cash flow forecast analysis suggests upside potential to a price tag of $48.25 per share.
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