LRN Stock Study (7-11-23)

I recently did a stock study on Stride Inc. (LRN) with a closing price of $36.86.

M* writes:

     > Stride Inc is an American online educational company. The company
     > offers alternative programs to traditional on-campus schooling.
     > It also operates state-funded virtual charter schools around the
     > United States. The educational programs for K-12 students are
     > usually monitored by parents and provide virtual classroom
     > environments where teachers meet with students online, by phone,
     > or in-person. The company’s contractual agreements with various
     > school districts to offer its curriculum programs provide a
     > majority of the company’s revenue. The company lines of business
     > are Managed Public School Programs, Institutional, and Private
     > Pay Schools and Other.

Over the past decade, this medium-size company has grown sales and EPS at 6.7% and 11.9% per year [excluding fractional EPS years of ’14, ’15, ’16, and ’17 that would otherwise inflate the latter to 21.3%], respectively. Lines are somewhat up and parallel, but visual inspection is mediocre. Sales dips in ’16, and 2015 sales is not exceeded until ’19. EPS dips in ’14, ’15, ’16, ’17, and ’20; 2013 EPS is not exceeded until ’19. I would therefore consider this for a smaller [speculative] position size.

Over the past decade, PTPM trails industry and peer averages while tracing a U-pattern from 5.5% in ’13 to 0.6% in ’17 to 8.7% in ’22 with a last-5-year mean of 5.2%. ROE slightly trails the industry while roughly matching peer averages by going from 5.6% in ’13 to 0.1% in ’17 to 13.8% in ’22 with a last-5-year mean of 7.4%. Debt-to-Capital is lower than peer and industry averages going from 6.3% in ’13 to 3.7% in ’19 before increasing to 41.0% in ’22 for a last-5-year mean of 22.3%.

Quick Ratio is 3.0, Interest Coverage is 156,628 / 8,277 = 18.9, and Value Line assigns a B++ rating for Financial Strength.

With regard to sales growth:

• CNN Business projects 5.9% YOY and 5.7% per year for ’23 and ’22-’24, respectively (based on 4 analysts).
• YF projects YOY 7.7% and 7.1% for ’23 and ’24, respectively (5 analysts).
• Zacks projects YOY 7.8% and 6.4% for ’23 and ’24, respectively (3).
• Value Line projects 6.7% annualized growth from ’22-’27.
• CFRA projects 7.7% YOY and 7.4% per year for ’23 and ’22-’24, respectively (5).
• M* gives a 2-year ACE of 7.0% annualized growth.

I am forecasting conservatively below the range at 5.0%.

With regard to EPS growth:

• CNN Business projects 12.3% YOY and 10.7% per year for ’23 and ’22-’24, respectively (based on 4 analysts), along with 5-year annualized growth of 20.0%.
• MarketWatch projects 10.5% and 14.0% per year for ’22-’24 and ’22-’25, respectively (5 analysts).
• Nasdaq.com projects 9.6% YOY and 14.4% per year for ’24 and ’23-’25 [3, 3, and 1 analyst(s) for ’23, ’24, and ’25].
• Seeking Alpha projects 4-year annualized growth of 20.0%.
• YF projects YOY 12.3% and 9.2% for ’23 and ’24, respectively (5), along with 5-year annualized growth of 20.0%.
• Zacks projects YOY 11.9% and 9.6% for ’23 and ’24, respectively (3), along with 5-year annualized growth of 20.0%.
• Value Line projects 7.7% annualized growth from ’22-’27.
• CFRA projects 18.7% YOY and 13.6% per year for ’23 and ’22-’24, respectively (4).
• M* projects long-term growth of 20.0% per year.

Five of six long-term estimates are exactly the same (20.0%), which makes me suspicious of data duplication. The mean [of six] is 18.0%. Assuming two different analyst (combinations) are responsible for 20.0% across five data sources, the mean [of three] would be 15.9%. I will forecast conservatively at 10.0% and use ’22 EPS of $2.52/share as the initial value rather than ’23 Q3 $2.61 (annualized).

My Forecast High P/E is 17.0. Over the past decade, high P/E has trended down from 42.9 in ’13 to 16.9 in ’22 with a last-5-year mean of 33.8. The last-5-year-mean average P/E is 25.3. I am forecasting near the bottom of the range.

My Forecast Low P/E is 10.0. Over the past decade, low P/E has trended down from 22.0 in ’13 to 10.2 in ’22 with a last-5-year mean of 16.7. The last-10-year median is 23.6. I am forecasting below the entire range.

My Low Stock Price Forecast (LSPF) is the default $25.20 based on $2.52/share initial value. This is 31.6% less than the previous close, 17.9% less than the 52-week low, and 1.6% less than the 2022 low.

These inputs land LRN in the HOLD zone with a U/D ratio of 2.8. Total Annualized Return (TAR) is 13.4%.

PAR (using Forecast Average—not High—P/E) of 8.3% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 22 studies over the past 90 days (my study and 7 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 7.0%, 9.5%, 25.0, and 15.8, respectively. I am lower on all except EPS growth (10.0%), but I can’t read too much into such a small sample size. Value Line projects an average annual P/E of 20.0, which is lower than MS (20.4) and much higher than mine (13.5).

MS high/low EPS is $4.06/$2.46 vs. my $4.06/$2.52 (per share). This may be the closest agreement I have seen thus far.

MS LSPF of $29.40 implies a Forecast Low P/E of 12.0 vs. the above-stated 15.8. MS LSPF is 24.4% lower than the default value of $2.46/share * 15.8 = $38.87, which results in more conservative zoning. MS LSPF remains 16.7% greater than mine.

Despite the small MS sample size, MOS in this study seems to be at least moderate if not robust.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. Both are 0.6 (per Zacks and M* data, respectively), which suggests the stock to be undervalued.

I am also familiarizing myself with Kim Butcher’s “quick and dirty DCF.” According to this method, the stock price is undervalued by 32.0%: 9.5 * [$6.90 – ($0.00 + $0.25)] = $63.18.

I would look to purchase shares under $35 (a few percentage points lower to boost projected return above my threshold).