The education sector has undergone a fundamental change in the past few years owing to the growth of digital education. As organizations and institutions continue to adapt to these changes, the e-learning market is set to experience robust growth in the coming days.
With more than 90% of companies offering some form of digital learning opportunities to induce the growth of their employees, numerous companies are partnering up with specific education providers to achieve the same. An estimated 98% of universities reported having some online classes, enhancing the prospects of the shift.
This massive rise in popularity of online learning would not have been possible without widespread internet penetration. As of 2024, more than 5.35 billion people, or 66.2% of the world population, have used the internet or are an active part of it. As the world becomes increasingly digital, the prospects of e-learning are set to go up.
Amid this expansive landscape, Graham Holdings Company (GHC) stands out with its investment in different education services such as test preparation services and materials, professional training, and exam preparation for professional certifications, as well as licensures.
Reflecting its strong market position and growth potential, GHC’s stock has climbed 24% over the past nine months and 31.7% over the past year, closing its latest trading session at $951.37.
Now, let us discuss the factors that could affect the stock’s growth trajectory.
Stable Historical Growth
GHC’s performance is evident in its steady growth across key metrics. Over the past three years, the company’s revenue and EBITDA have grown at a CAGR of 14.9% and 12.3%, respectively. Meanwhile, operation income (EBIT) and total assets expanded at respective CAGRs of 17.2% and 3.6%.
Sound Financials
For the fiscal 2024 third quarter (ended September 30, 2024), GHC’s operating revenues increased 8.6% year-over-year to $1.21 billion. Its operating income amounted to $81.65 million, compared to a loss of $57.11 in the previous year’s quarter.
Moreover, the company’s adjusted net income and adjusted net income per common share grew 55.9% and 65.1% from the prior year’s period to $76.14 million and $17.25, respectively.
Dividend Growth
On January 16, GHC declared a quarterly cash dividend of $1.80 per share, payable on February 20, 2025, to shareholders of record on February 3, 2025. The commitment to returning value may appeal to long-term investors, potentially driving stock demand.
GHC has increased its dividends for eight consecutive years. Currently, it pays an annual dividend of $7.20, which translates to a 0.76% yield at the current price level. The stock’s dividend payouts have increased at a CAGR of 4.4% over the past five years. Its four-year average dividend yield is 0.99%.
Optimistic Analyst Estimates
Analysts expect GHC’s revenue and EPS for the fiscal 2024 fourth quarter (ended December 2024) to increase 8.7% and 102.2% year-over-year to $1.27 billion and $22.12, respectively. Additionally, the company has surpassed consensus EPS estimates in three of the four trailing quarters.
For the fiscal 2025 first-quarter ending in March, GHC’s revenue is expected to rise 4.3% from the prior year’s period to $1.20 billion. Its EPS for the same period is expected to marginally increase year-over-year to $11.29.
Discounted Valuation
GHC is currently trading at a forward non-GAAP P/E of 15.19x, which is 10.2% lower than the industry average of 16.92x. The stock’s forward EV/Sales multiple stands at 0.96, 24.1% lower than the industry average of 1.26x.
Additionally, it has a forward Price/Sales multiple of 0.85, which is 12.3% lower than the industry average of 0.97x. This indicates that GHC is undervalued compared to its peers, offering potential upside for investors.
POWR Ratings Reflects Optimism
GHC’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
GHC has a B grade for Sentiment, which is in line with the optimistic analyst estimates. It earns a B grade for Value, driven by its discounted valuation metrics relative to the industry average. Moreover, the stock earns a B grade for Growth, which is evident from its impressive growth history.
Within the A-rated Outsourcing - Education Services industry, GHC is ranked #3 out of 19 stocks.
Beyond what is stated above, we have also given GHC grades for Momentum, Quality, and Stability. Get all GHC ratings here.
Bottom Line
The industry’s prospects remain strong, and GHC has positioned itself as a leading player in the industrial manufacturing sector, backed by its solid fundamentals. Additionally, the company’s commitment to returning value to shareholders is evident through its recent dividend payouts.
The company’s impressive financial results, which showcase a clear-cut growth trajectory to achieve even higher profits, are a testament to its rosy prospects. With such financials, an attractive valuation, optimistic analyst projections, and impressive historical growth metrics, now may be an opportune time to consider adding GHC to your portfolio.
How Does Graham Holdings Company (GHC) Stack Up Against Its Peers?
Although GHC’s near-term outlook appears sound, it may be worthwhile to explore its industry peers, who exhibit even stronger POWR Ratings. So, consider these A (Strong Buy) and B (Buy) rated stocks from the Outsourcing - Education Services industry:
Adtalem Global Education Inc. (ATGE)
Perdoceo Education Corporation (PRDO)
QuantaSing Group Limited (QSG)
To explore more A or B-rated Outsourcing - Education Services stocks, click here.
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GHC shares fell $3.37 (-0.35%) in premarket trading Wednesday. Year-to-date, GHC has gained 9.32%, versus a 3.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Aritra_Gangopadhyay
Aritra is a financial journalist dedicated to breaking down complex financial topics into simple, actionable insights. Holding a Master’s degree in Economics, he uses his analytical expertise to help investors uncover unique opportunities for long-term success.
Is Graham Holdings a Hidden Gem in the Education Sector? StockNews.com
