Online Programs And Tutoring Will Shape Future Career Education

Key Takeaways

• Growing demand for online programs and strategic investments will drive enrollment and revenue growth amid dissatisfaction with traditional education.
  
• Operational efficiency and technological innovation enhance margins, optimizing profitability and boosting student engagement and retention.
  
• Stride's reliance on evolving market conditions and challenges with enrollment and strategic execution may impact future revenue and net margins.

Catalysts

A technology-based education service company, engages in the provision of proprietary and third-party online curriculum, software systems, and educational services in the United States and internationally.

• Stride benefits from increasing demand for full-time online programs, driven by rising parental dissatisfaction with public education and interest in career-focused learning, which is expected to drive enrollment growth and positively impact revenue.
  
• The company is poised for continued enrollment growth into fiscal year 2026, supported by year-over-year increases in application volumes and retention, which will contribute to revenue growth.
  
• Gross margin improvements of approximately 200 basis points for the full year indicate better operational efficiency, leading to enhanced net margins and profitability.
  
• Stride's strategic investment in technology and innovative solutions like high-dosage tutoring and socialization platforms could enhance student engagement and program delivery, potentially increasing retention rates and long-term revenue per enrollment.
  
• Despite some constraints on enrollment capacity, expected increases in in-year enrollments and favorable funding environments suggest continued robust revenue growth and operating income expansion.

Stride Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Stride's revenue will grow by 10.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.1% today to 15.9% in 3 years time.
• Analysts expect earnings to reach $487.3 million (and earnings per share of $9.41) by about May 2028, up from $299.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.2x on those 2028 earnings, down from 22.7x today. This future PE is lower than the current PE for the US Consumer Services industry at 19.0x.
• Analysts expect the number of shares outstanding to grow by 1.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.56%, as per the Simply Wall St company report.

Stride Future Earnings Per Share Growth

Risks

• Stride is experiencing constraints due to closed enrollment periods, which could limit the growth in new enrollments and impact revenue potential.
  
• The company has not yet cracked the code on creating a standalone funnel for its career learning program, indicating a risk of underperformance in this growth area, which could affect future revenue streams.
  
• Despite strong demand, a slight decline is expected in revenue per enrollment due to the impact of state mix from in-year enrollment, potentially affecting overall revenue generation.
  
• Ongoing tests and experiments for marketing and career learning initiatives indicate a lack of certainty in strategic execution, which might impact future earnings if such initiatives do not yield expected outcomes.
  
• While Stride remains optimistic about future growth, reliance on evolving market conditions and socialization offerings suggests vulnerability to external factors that could influence revenues and net margins.

Valuation

• The analysts have a consensus price target of $157.75 for Stride based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.1 billion, earnings will come to $487.3 million, and it would be trading on a PE ratio of 17.2x, assuming you use a discount rate of 6.6%.
• Given the current share price of $158.17, the analyst price target of $157.75 is 0.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.