It’s pretty clear that the education system has been disrupted more by the pandemic than it has from online education programs. And this novel-coronavirus-induced dynamic has driven many investors toward online education stocks.
School is generally about more than gaining and retaining knowledge. It’s about socialization with clubs and sports and navigating buildings with hundreds or thousands of other peers.
Higher learning has been the best place for most online educators to look since many of these students are working and looking to gain or add a degree while they still have their daytime jobs and can work school around their circumstances.
But now, we’re also looking at primary education online.
Fortunately, a rise in home schooling has meant that companies have already started to explore those avenues. But now, the opportunities in online education stocks have expanded tremendously.
The online education stocks here have the best shot at building a name for themselves now, and in the years to come:
- Chegg (NYSE:CHGG)
- Arco Platform (NASDAQ:ARCE)
- K12 Inc (NYSE:LRN)
- Universal Technical Institute (NYSE:UTI)
- New Oriental Education & Technology Group (NYSE:EDU)
Let’s look at what makes each of these education stocks pop in today’s post-Covid-19 world.
What do you get when you mix chicken and egg? Chegg, of course.
It was initially built in 2000, by a few Iowa State University students that were trying to solve the paradox of getting a job without experience — you need to get experience but you can’t get a job without experience.
Over the years, the company went through various iterations but is now a powerful niche player in the textbook rental/sales and student services like study materials, tutors, etc. It also provides services for finding internships and scholarships.
At the end of 2019, Chegg had 4 million subscribers, and most of the revenue came from student services.
The company has been very good at keeping a youthful voice as it grows in corporate power. It has programs to allow employees to get money to repay student debt beyond their salaries and has championed important social justice issues.
That connection to its customers has help it build out its visibility with an interactive polling partnership with College Pulse, the Chegg/College Pulse Student Election Tracker.
Chegg has an $8 billion market cap, so it’s no small cap with big dreams; it’s a real company making big moves. CHGG stock is up 87% year to date, and given the swirl of controversy about school and college re-openings, it will stay on the front burner. Also, it could be a great takeover target for a firm looking to buy into the sector.
Arco Platform (ARCE)
Brazil ranks No. 2 on the list of affected countries from Covid-19, just below the U.S. and just above India. Even the president of the country has Covid-19.
The country has a long reputation for its income disparity. The wealthy helicopter to work so they don’t have to risk the drive through favelas (shantytowns) where they might be robbed or kidnapped.
In that tension is a challenged education system where the poor cope with a broken infrastructure and the middle class and upper class pay for private schools. Students are only required to go to school until they are 14.
That leaves people who want to pursue secondary and university educations with challenges on preparing to deal with higher education.
That’s where Arco comes in. It has built Western-style curriculums for over 5,400 private schools, serving more than 1.3 million students. It provides both print and digital materials to schools and students and creates a uniform experience for students so they can pursue higher education beyond Brazil if they choose.
With a $2.4 billion market cap, it’s a key player in this space. But Brazil’s economy generally operates in a boom and bust cycle, so it can be a volatile stock. But this is one area where parents can and will pay to keep their children on track.
ARCE stock is off about 1% currently but is a buy since the demographic it serves is less affected by current circumstances than the broader country.
K12 Inc (LRN)
If you’re looking for online education stocks that focus on online education for U.S. students in K-12, then LRN stock is the one to buy.
Firms like K-12 Inc are called educational management organizations (EMOs), and K-12 Inc is the biggest of the bunch.
The company was founded with money from major donors in the political, tech and business arenas and currently has 1 million students using its online curriculums.
While the initial goal was to create a uniform curriculum for homeschooled children in 2005, that mission has matured as technology has made online schooling much more accessible and practical for students and school districts.
And now that Covid-19 is here, its mission has become even more attractive to many parents concerned about sending their kids back to schools and school boards looking for alternatives to develop hybrid re-openings that rotate populations in and out of schools.
LRN stock has taken off — it’s up 83% in the past month alone, and 136% year to date. But it’s still trading at a market cap just below $2 billion, so it’s also a great takeover candidate compared to other online education stocks.
Plus, the company’s greatest challenge is simply scaling up its content, which should be pretty easy. That means its margins will likely soar in coming months, so there’s plenty of growth left.
Universal Technical Institute (UTI)
There are two paths to success with UTI. First, given the fact that there are more than 40 million unemployed in the U.S., the technical training UTI provides will likely see an uptick in demand for people that were, for example, in the service industry, who are now looking for new careers.
Founded in 1965, UTI runs 15 schools around the U.S. that have technical training programs for cars, trucks, marine and racing. Some of this education can be done online and some is done in facilities where students work on vehicles and equipment.
Given the fact that these are generally large spaces, it’s still possible for students to socially distance.
Also, now that traditional college campuses are more of a challenge, there will be some potential students that will opt for a year’s worth of technical training and wait out the pandemic before entering a four-year institution.
UTI stock hasn’t been caught up in the online school frenzy at this point, although UTI stock is up 73% in the past 12 months, while off 11% year to date.
It only has a $212 million market cap, so any increased interest will light the fuse on this one. But bear in mind, it may be volatile.
New Oriental Education & Technology Group (EDU)
If there’s one area where online education and tutoring is a huge business with even greater growth potential, it’s China.
The sheer fact that it has such a large population means it has huge potential. For example, it has slightly more people under the age of 24 as the entire population of the United States.
It has 240 million under the age of 14.
Plus, there’s a very high value placed on education in the country. Add to that fact the chilling relationship between the U.S. and China, and the rise in China’s economy and homegrown scholars is becoming more realistic and even preferred.
Simply put, there’s huge potential in China.
And EDU is the largest virtual education company in China.
It started in 2001, and has grown its services and base since then. Now, it trades in the U.S. and has a market cap around $23 billion, making it a full-fledged large cap stock.
EDU has been a favorite China stock for while because it’s a play on a key demographic in a huge market. But now, it has even more going for it, as online education and tutoring expand due to Covid-19.
EDU stock is up 20% year to date and 50% in the past 12 months.
As of this writing, Gregg Early did not hold a position in any of the aforementioned securities.