One commonality behind the most successful growth stocks is that they are capitalizing on a secular trend that is more powerful than shorter-term considerations like the business cycle or monetary policy.

Sometimes, these can be massive, epoch-shifting ones like electric vehicles or cloud computing. Other times, it can be less visible but more durable. An example of such a trend that should be on the radar of investors is the rise of homeschooling and self-education.

This is a natural consequence of a couple of developments. For one, the country is becoming increasingly polarized, and public schools are increasingly becoming an arena for these political battles, especially in the post-pandemic world. So, many conservatives are electing to homeschool, because they are unsatisfied with the curriculum at public schools. And, many liberals are doing the same due to safety issues and other considerations. 

Stride (LRN) is one of the leading online, educational platforms that will benefit from this trend. Read on to find out why it’s our growth stock of the week…

Company Background

LRN is a tech-based, education company that sells and licenses its own educational materials as well as third-party curriculums, software, and educational services for individualized learning for students in K-12 in the US and internationally.

It’s been built to meet the modern-day needs of schooling. This includes software and tools for schools to manage students’ attendance, grading, communication with parents, etc. It also offers packages for students in virtual or blended schools. It also has a growing segment of career learning products and services for the IT, health care, and business markets. 

Catalysts

There are several, potent catalysts looming for  LRN. The biggest one is the increasing acceptance and growth of homeschooling. It’s gone from a niche market to one that is becoming more mainstream and broadly accepted, especially in the post-COVID world.

In 1990, there were about 275,000 kids who were homeschooled, while the figure is close to 2.5 million in the present. Of course, it’s also easier now due to technology and the availability of various curriculums.

Another catalyst for LRN is that tech and growth stocks have been mired in a brutal bear market for much of the past 16 months. Now, the market environment is improving as evidenced by the latest rally. And, companies like LRN that have continued to grow earnings and sales at a steady pace should go on to make new highs.

GARP

Given the broad uncertainty of the market environment and challenging circumstances in addition to the opportunities created by the bear market in growth stocks, GARP strategies should outperform especially with so many opportunities.

LRN is an ideal example as it has a forward P/E of 12 which is cheaper than the S&P 500, yet it’s forecast to grow EPS by 25%, more than triple the S&P 500’s expected EPS growth over the next 12 months. Further, the company has an attractive business model that should result in higher operating margins over time. Not to mention that it’s the leading company in this growing niche.

Earnings

LRN’s recent earnings report may also provide an attractive, entry point for investors. The stock dropped 10% despite the company beating expectations on the top and bottom-line and attaining a new record in terms of profitability. However, the company fell short of expectations for guidance.

One factor in the stock’s underperformance is that the political environment has shifted following good news on the economic and inflation front in addition to the Dobbs decision which has changed the dynamics behind the upcoming election. A Republican sweep of Congress and more seats won at the state and local levels would lead to more support for vouchers for homeschooling which has the potential to really accelerate LRN’s business.

POWR Ratings

The POWR Ratings are also bullish on LRN as it’s rated a B which translates to a Buy. B-rated stocks have posted an average annual performance of 21.1% which compares favorably to the S&P 500’s annual average gain of 8.0%. Click here to see more of LRN’s POWR Ratings.

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LRN shares were trading at $35.33 per share on Thursday morning, up $0.18 (+0.51%). Year-to-date, LRN has gained 6.00%, versus a -9.48% rise in the benchmark S&P 500 index during the same period.

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.

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