What happened
Shares of Stride (LRN +1.63%), a technology-based education company, rose a dramatic 35% in early trading on Jan. 26. Although an hour into the trading day, that massive gain had cooled somewhat, the stock was still higher by an impressive 30% or so. The company's fiscal second-quarter 2022 earnings release, which hit the Street after the close on Jan. 25, was the cause of all the excitement.
So what
Stride reported revenues of $409.5 million in its fiscal second quarter, up from $376.1 million in the same period of 2021. That's roughly a 9% increase. The company's general education division, which provides services to high schools and such, saw revenues decline 0.2%, remaining basically flat. The real strength came from the company's career learning segment, where sales in the middle and high school area increased 46.5% while adult sales rose by 94.6%. Overall career learning segment revenues were higher by 54.9%, clearly driving the company's top-line gain. Enrollment in Stride's career learning segment was up 38.3% in the quarter, while general education enrollment fell by 9.7%. Given the relative sizes of the two divisions, overall enrollment ended off by 2.1%.
Image source: Getty Images.
On the bottom line, net income increased to $1.00 per share in the fiscal second quarter of 2022 compared to $0.60 in the prior year. This was helped along by solid cost containment and an increase in the revenue generated per enrolled student, which jumped 11.3% in the general education segment and 6.7% in career learning. All in all, the big story appears to be that Stride's efforts to expand its career learning business are paying off, which could greatly improve the company's future prospects. In fact, the company increased its forecast for fiscal 2022 revenues and adjusted operating income, taking the latter from a range of $165 million to $180 million to a range of $175 million to $185 million. Not surprisingly, investors were pleased with this update.
Now what
Given the massive price gain in Stride's shares today, however, it seems a lot of good news has been priced in here. Before buying this stock at this point, investors should probably step back and do a deep dive to make sure the long-term potential really backs up the quick price gain. Notably, a massive price spike early in the pandemic withered away as the long-term story of digital learning didn't actually hold up so well to reality. Indeed, it is entirely possible that the strength in the career learning division right now could be a short-lived reaction to currently tight labor markets.
