Stride Inc. -$LRN; A hidden Utility trading like a value stock
"Just show me something that you have a high degree of confidence is going to be much bigger ten years from now..."
The above quote is from a friend who makes his living as a short seller and is very choosy about going long…$LRN might be a name even he could get behind.
It feels almost inevitable that Stride Inc. ($LRN) will be much bigger 10 years from now, and you’re not paying much for the growth.
What do they do? Stride is a for-profit education company that provides tuition-free, online programs designed as an alternative to traditional K-12 "brick and mortar" education for public school students.
Stride is the largest online provider with 188,000 students spread across 30 states out of a total market of ~500,000 v. 50mm total students in US public schools.
Here’s the valuation:
Trading at 6.6x EV/’24 Adj. EBITDA seems low for a business that is basically like a utility: Unless the law changes, parents are mandated to send their kids to school, or they might end up in Jail!
Like any highly regulated industry where the government (in this case, local municipalities) are footing the bill, there are substantial barriers to entry. The only national players are Stride and Connections, a division of the large education company Pearson.
As might be expected, Stride got a HUGE bump during the Pandemic when everyone went online, but excluding the Pandemic boosts revenues/enrollments have grown at a 9% CAGR:
Profitability and Free Cash Flow have been solid:
This is a simple thesis that comes down to two bets:
The school-from-home population will continue to increase.
Stride will translate that growth into higher earnings.
How much could earnings be a couple of years from now?
On October 24, 2023, Stride presented 5-Year Guidance.
Relative to the current stock price of $58/share, the FY28 EPS range of $6-8/share makes the current stock price look cheap.
The last time Stride gave multi-year guidance (Nov. 2020), they exceeded their targets, so at least that is something to hand your hat on.
This business has been around for 30 years and has only strengthened post-pandemic. Here’s what Stride’s President of Schools said at the October Investor Day:
