Stride Stock Gains After Q2 Earnings Release: Time to Buy or Wait?

Stride, Inc. LRN gained 17.9% since it released its second-quarter fiscal 2025 results on Jan. 28, 2025. The stock’s strong performance likely stems from its earnings and revenues surpassing the Zacks Consensus Estimate and showing year-over-year growth. In contrast, during the same period, the Zacks Schools industry grew 5.1% and the Zacks Consumer Discretionary sector inched up 0.5% with the S&P 500 declining 0.8%.See the Zacks Earnings Calendar to stay ahead of market-making news.Following its stronger-than-expected quarterly results, the company raised its fiscal 2025 outlook, projecting year-over-year growth in both revenues and adjusted operating income. It now anticipates full-year revenues to be between $2.32 billion and $2.355 billion (indicating 13.7-15.4% year-over-year growth), an increase from the prior forecast of $2.225-$2.30 billion. Additionally, adjusted operating income is expected to be in the range of $430-$450 million (depicting 46.3-53.1% year-over-year growth) compared with the previous estimate of $395-$425 million.Notably, since the second-quarter earnings release, LRN also outperformed a few of the other industry players including Universal Technical Institute, Inc. UTI, Adtalem Global Education Inc. ATGE and American Public Education, Inc. APEI. The detailed price performance is shown in the chart below.Image Source: Zacks Investment ResearchKnowing LRN’s Q2 NumbersStride reported second-quarter fiscal 2025 earnings of $2.03 per share, which surpassed the consensus mark of $1.97 by 3.1%. In the year-ago quarter, the company reported earnings per share of $1.54. Notably, it surpassed expectations in the past four quarters, with an average earnings surprise of 97.8%.Image Source: Zacks Investment ResearchThe quarterly revenues of $587.2 million also topped the consensus estimate of $572 million by 2.7% and grew 16.3% year over year.During the fiscal quarter, the company’s total enrollment grew 19.4% to about 230,600 from the last year's quarter. The primary contributor to the growth was a 30.9% increase in Career Learning enrollments.The selling, general and administrative expenses declined to $114.8 million from $116.9 million reported a year ago. Adjusted operating income grew 42.9% year over year to $135.6 million. Also, adjusted EBITDA during the fiscal quarter was $160.4 million, up 35.5% year over year from $118.3 million.Estimate Trend Favors StrideGiven the upbeat fiscal 2025 outlook coupled with quarterly growth momentum, investors’ sentiments might have been boosted, reflecting an upward revision of the year’s earnings estimates in the past 30 days. As visible from the chart below, the revised estimate for fiscal 2025 indicates 42.2% year-over-year growth rate, with the fiscal third quarter showcasing a 25.6% rise.EPS TrendImage Source: Zacks Investment ResearchFactors Driving LRN’s MomentumThe demand strength for Stride’s virtual and blended educational programs is supporting its enrollment growth amid a favorable market backdrop. The backdrop summarizes the optimism surrounding the U.S. education market regarding the regulatory reforms to be undertaken under President Trump’s administration. Furthermore, the company’s continuous strategic efforts, including purchasing of property and equipment, capitalizing on advanced software and focusing on curriculum development, are additional benefits that are fostering its uptrend.Another driving factor of the company is its focus on meeting its fiscal 2028 targets. Under the fiscal 2028 targets, LRN expects revenues to grow in the range of $2.70-$3.30 billion, reflecting a 10% compound annual growth rate (CAGR) from fiscal 2023. Adjusted operating income is projected to be between $415 million and $585 million (with a 20% CAGR). Also, EPS is expected to be between $6.15 and $8.35, with a CAGR of 20%. Given the ongoing enrollment growth, backed by various in-house and macro aspects, it believes that it is well-positioned to achieve the fiscal year’s goals without much hassle.Regarding synergies from cost-saving efforts and a balanced capital allocation model, it is to be noted that despite an inflationary market scenario, LRN has been undergoing cost cuts and expanding its margins through various cost-reduction initiatives. Furthermore, it also ensures efficient utilization of its free cash flow to enhance its business activities and reward shareholders. As of Dec. 31, 2024, Stride’s cash, cash equivalents & marketable securities were $717.5 million, with a long-term debt of $415.5 million. The numbers indicate the company’s sufficient liquidity position to pay off its debt obligations.LRN Trading at a PremiumStride is currently trading at a premium compared with the industry peers on a forward 12-month price-to-earnings (P/E) ratio basis. The premium valuation indicates that the stock is trading above its industry peers, making it difficult for investors to figure out a suitable entry point. On the other hand, the overvaluation indicates the strong potential of the stock in the market given the favorable trends backing it up, especially since the beginning of 2025.Image Source: Zacks Investment ResearchLRN’s ROE TrendThe company’s trailing 12-month return on equity (ROE) reflects its growth potential and focus on maintaining shareholder value. As evidenced by the chart below, LRN’s ROE is significantly better compared with the industry.Image Source: Zacks Investment ResearchHeadwinds to Stride’s ProspectsAlthough LRN’s prospects are strongly attributable to the tailwinds mentioned above, it is not entirely immune to macro headwinds like the persisting inflationary environment. The ongoing inflated market scenario continuously poses a threat to the company’s margin expansion efforts and is likely to linger for some time. Furthermore, the continued softness of its Adult Learning business, under the Career Learning segment, adds to the negative aspects, hindering the company’s uptrend to some extent.How to Play LRN Stock?With strong earnings growth, a raised outlook and a solid financial position, LRN remains a compelling investment. The company’s expanding enrollment, strategic investments and cost-saving initiatives enhance its long-term growth potential. Despite trading at a premium, its strong fundamentals and future growth trajectory justify its valuation, validating its Value Score of B.However, considering the market’s inflationary risks and soft contributions from its Adult Learning business, it is prudent for existing investors to hold on to this Zacks Rank #3 (Hold) company’s shares for now, whereas new investors might want to wait for a more favorable entry point.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Just Released: Zacks Top 10 Stocks for 2025Hurry – you can still get in early on our 10 top tickers for 2025. Handpicked by Zacks Director of Research Sheraz Mian, this portfolio has been stunningly and consistently successful. From inception in 2012 through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Sheraz has combed through 4,400 companies covered by the Zacks Rank and handpicked the best 10 to buy and hold in 2025. You can still be among the first to see these just-released stocks with enormous potential. See New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report American Public Education, Inc. (APEI): Free Stock Analysis Report Universal Technical Institute Inc (UTI): Free Stock Analysis Report Stride, Inc. (LRN): Free Stock Analysis Report Adtalem Global Education Inc. (ATGE): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks