Education may not be the first sector that comes to mind when you're looking for new investment opportunities. But, with online learning booming, especially in connection with the COVID-19 pandemic, education companies are pursuing some exciting and profitable business opportunities.
Education companies are a diverse group. Some of them operate in-person campuses, others are tech companies, and still others offer a blend of physical and online services. After-school tutoring programs are increasingly popular, and for-profit education, despite receiving plenty of criticism, is still growing and providing valuable career training in a variety of industries.
Top education stocks
Here are some of the best education stocks to consider adding to your portfolio:
1. Chegg
Chegg (CHGG 0.15%) has become a destination for high school and college students looking for online educational support. The direct-to-students learning platform offers services including:
- 24/7 homework help
- Fully explained solutions to millions of homework problems
- A textbook marketplace where students can buy, sell, and rent textbooks
- A plagiarism and grammar checker for papers
- An expert Q&A service
The COVID-19 pandemic led to massive growth for Chegg. Year-over-year revenue increased by 57% in 2020, and its number of subscribers increased by 67%. Chegg is also good at retaining subscribers since it has an affordable monthly price of less than $20 and scores highly in customer satisfaction ratings.
2. K12
K12 (LRN 0.17%) is an education management organization offering virtual learning. Students can attend K12's virtual public schools as an alternative to local public schools or homeschooling. Schools can also partner with K12 for blended learning, which uses virtual content to supplement what students learn in the classroom.
With virtual learning the new normal for most of 2020, K12 benefited from that change. Revenue for the company's third fiscal quarter of 2021 was 52.5% higher year-over-year, and its net income grew by an impressive 171.8%.
Even with schools reopening, online education remains an increasingly popular alternative to traditional brick-and-mortar schools and homeschooling, making K12 a good long-term investment.
3. New Oriental Education
New Oriental Education & Technology Group (EDU 1.92%) is the largest provider of private educational services in China. Tutoring for K-12 students has historically been its most successful service, and the company also has private learning centers, online education programs, and test preparation services.
China started imposing new regulations on private education companies in 2021 by not allowing them to advertise in state-owned media and restricting which services they can offer. While those regulations seriously impacted the company and China's other top education stocks, New Oriental Education is one of that country's oldest education companies. Its diverse range of services gives it an edge over competitors that focus solely on online education.
4. Zoom
Zoom Video Communications (ZM 3.49%) is the videoconferencing software of choice for many schools, businesses, and families. Its popularity exploded in 2020 as the COVID-19 pandemic turned Zoom into a household name and a verb. Movies and TV shows have even been filmed using Zoom, giving the company a mainstream appeal that bodes well for its business.
While Zoom benefited from COVID-19, it shouldn't be mistaken for a pandemic stock whose price is likely to plummet as the crisis subsides. Even with restrictions easing up, virtual learning and telecommuting are here to stay.
Zoom has also been extremely profitable, which means the company has plenty of cash to reinvest. The video conferencing leader is well positioned to maintain its status as an industry giant.
5. Bright Horizons Family Solutions
Bright Horizons Family Solutions (BFAM 1.65%) provides child care and early education for parents and employers. It operates more than 1,000 child care centers worldwide, with most of them located in the U.S. Many of its facilities had to shut down during the pandemic, so this company's outlook is trending upward after a difficult period.
Bright Horizons is notable because it creates a competitive advantage through its employer-sponsored services. The company partners with employers to provide on-site child care for employees. This service has low costs and high retention rates, and it's a market segment that Bright Horizons is dominating.
6. Lincoln Educational Services
Lincoln Educational Services (LINC 0.31%) provides post-secondary career education and training. It's popular among young adults for its hands-on training in career-specific fields. Lincoln Educational offers the following types of training programs:
- Automotive repair
- Skilled trades such as welding and machining
- Health sciences
- Culinary arts
- Spa and cosmetology services
- Information technology support
Net income for Lincoln Educational for the first quarter of 2021 increased by 333% year-over-year to $225 million. Promising U.S. job growth numbers should benefit this company since a strong job market leads to more people learning new skills. Lincoln could also benefit from falling university enrollment numbers, especially if more high school graduates opt for career training.
7. 2U
2U (TWOU -3.73%) offers online degree programs by partnering with colleges and universities. Founded in 2008, the company has partnerships with several top universities, including the University of Southern California, Harvard University, and the University of California, Berkeley.
2U originally offered only online graduate degrees, but it added undergraduate degrees in 2019. It also offers certifications in a variety of technical subjects such as coding and cybersecurity.
Although this company faces robust competition in the online learning space, its revenue numbers have been impressive. 2U's total revenue, year-over-year, increased by 44% in 2018, 40% in 2019, and 35% in 2020.
Trends in the education sector
The education sector was upended in 2020 by the COVID-19 pandemic. Students of all ages transitioned to online learning to the benefit of companies offering virtual schooling and online educational content.
A longer-term trend in education is the decline in college enrollment rates, which have annually dropped by an average of 1.67% since 2010. Technology is also shortening attention spans, which is increasing the popularity of companies that enable microlearning — consuming educational content in short modules of no more than 15 minutes.
Two more companies to consider are Coursera (COUR -0.9%), the online platform that gives learners full control of their curriculums, and Cornerstone OnDemand (NASDAQ:CSOD), which acquired the microlearning industry leader Grovo in 2018.
Should you buy education stocks?
Quite a few promising education companies could be winners for your portfolio. The top education stocks are those of companies that have shown themselves to be adaptable and capable of continuing to growing despite disruptions in the industry.
