Online education is becoming a bigger business all the time, which is why shares of
Houghton Mifflin Harcourt NASDAQ: HMHC,
Chegg NYSE: CHGG and
GP Strategies NYSE: GPX are racing higher. Digital learning was already on the upswing when the pandemic hit; Covid only accelerated that trend.
Houghton Mifflin Harcourt gapped up 18.73% Monday, to $7.10, on news that the publisher said it would sell its consumer book division to News Corp. NASDAQ: NWS for $349 million in a cash transaction.
It’s not the addition of $349 million to the income statement that caused investors to perk up. It’s where HMH plans to take the business next: The company said it would now focus solely on K-12 education, developing a recurring revenue model through digital learning programs.
The company was already headed in that direction. In October 2020, it announced a strategic restructuring, designed to speed its transformation into a digital learning company. Its goal is to support students and teachers with technologies applicable to remote, in-person and hybrid educational environments.
The company has not been profitable, and analysts don’t see that changing any time soon, although Wall Street sees losses narrowing. For 2021, analysts peg the loss at $0.72 per share, an improvement over 2020’s loss of $3.82 per share, when pandemic-driven school closures hurt results.
HMH shares are up 113.21% year-to-date and 238.10% on a one-year basis. It added to those gains in Tuesday’s session.
As you might guess that level of price appreciation, the chart shows strong upside action in recent months. March marks its sixth month in a row of gains. Unfortunately, there hasn’t been much above-average trading volume, which is less than ideal. You’d prefer to see heavy turnover, a signal of institutional support, as shares make their way higher.
The stock is currently extended 5.4% from resistance at $7.20. Investors should use caution when purchasing an extended stock, as it would be easy to get shaken out in a pullback.
Chegg, which specializes in online tutoring, as well as programs that help students solve problems using video and online practice sets, advanced 124.41% over the past year.
In 2021, the stock has been correcting after pulling back from its February 16 high of $115.21. It’s finding support above its 200-day moving average, so the correction is nothing to panic about, at this point.
It’s not unusual to see a pullback after an extended rally, as institutional investors take profits. The current market-wide rally is a year old, so it is would not be surprising to see investors take money off the table as their investments qualify as long-term capital gains, which are taxed at a lower rate than short-term gains.
This company was able to make hay during 2020, growing earnings by 43%, to $1.34 per share. The company has been profitable every year since 2016, with analysts eyeing a 23% increase this year, to $1.65 per share.
Chegg, which began life as a textbook rental company, is pivoting toward a more digital future. It’s still in the textbook rental business, but even that has gone digital. Chegg is continuing to build out its suite of tools to help students navigate an educational environment that will be a hybrid of in-person and online.
Analysts’ consensus price target calls for $105.29 per share, a 26.42% upside potential.
GP Strategies is a small-cap stock that’s been on a tear over the past year. This is a different type of online education company, as it specializes in training for business and enterprise. In an era when business travel has been curtailed and more people are working from home, online training has proven to be a good solution.
Analysts don’t expect demand for online corporate training to slow down post-pandemic. Earnings are seen growing by 33% this year, to $0.96 per share, and another 23% next year, to $1.18 per share.
GP Strategies’ stock rose 43.68 % year-to-date and163.37% over the past year. Shares closed Tuesday at $17.56, up $0.52, or 3.05%.
The stock gapped up 6.34% on March 16, climbing to a new high of $18.24. It since retreated and is etching a consolidation near its 10-day moving average. It’s extended from a cup-with-handle breakout above $13.48, and is currently nearly 5% above its 10-day line, meaning it may be risky to initiate a purchase at this point.
However, investors should keep an eye out for the next moving-average pullback that may offer a new entry point.
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