Stride, Inc.

LRN Details

Stride, Inc. (NYSE: LRN) (formerly K12 Inc.) is a technology-based education company. The company provides educational products and services to assist individualized learning for students from kindergarten to adult learners. The company is engaged in two lines of business namely, 1) General Education, products and services that are focused on students from kindergarten to grade 12 for core subjects including Math, English, Science, and history 2) Career Learning, products and services that are focused on developing the skills for students in middle school to high school and adult learners including information technology, business, and health services. As of April 28^th, 2021, the company’s market capitalization stood at USD 1.22 billion.

Changing the face of American education: As of April 21^st, 2021, the company announced a new partnership with the National Association of Black Male Educators (NABME) to provide professional development resources for black male educators in virtual and hybrid schools in the U.S. This partnership with NABME aims to expand the number of Black teachers employed by Stride and to facilitate online and traditional teaching setup for teachers by providing them with the right tools.

Strong Q3FY21 Results: The company reported a 47.60% rise in net revenue to USD 1139.25 million in the first nine months of FY21 as compared to USD 771.83 million in the first nine months of FY20. The General Education segment contributes 83.40% while the Career Learning segment contributes 16.60% to the total revenue for the first nine months of FY21. The company reported a massive 210.71% increase in net income to USD 60.95 million in the first nine months of FY21 as compared to that of USD 19.61 million in the first nine months of FY20.

Key Risks: The company is dependent on various information-technology systems to provide products and services to its customers. Any failure in the information-technology system whether through malicious activity or through technological error could harm the company’s reputation and it could result in lower demand for its product and services.

Outlook:

FY21 guidance (Source: Company’s Earnings presentations, April 20, 2021)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LRN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: LRN has already declined 38.43% in the past nine months and is currently trading at a lower end of the 52-week range of USD 20.39 to USD 52.84. The stock is currently trading above the 200 DMA levels. We have valued the stock using the EV/EBITDA based relative valuation methodology and arrived at a target price of USD 33.57. Considering the significant decline in the stock price in the past nine-months, strong topline and bottomline growth, and current attractive trading levels, we recommend a “Buy” rating on the stock at the closing price of USD 29.40, down by 3.19% as of 28^th April 2021.