For-profit education covers more ground than you think. That opens up many more possibilities for profitable investments.
If you’ve paid any attention to the news in the last several years, you’ve undoubtedly heard about for-profit education. Most of that news was about for-profit colleges that showed little concern for anything beyond taking students’ money.
But the numbers in education, as a whole, are staggering. As in hundreds of billions of dollars, if not into the trillions. The exact number depends on how you parse out the sector. But whether or not you include peripherals like edtech, test prep services, or textbooks, we’re still talking about a lot of money.
Obviously, you aren’t going to be investing in public education (not in the way we’re talking about here, anyway). That still leaves plenty of opportunities. What we have to figure out as investors is which of those opportunities are worth jumping into.
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Making the grade: How for-profit education stocks earn their degree
While most of the for-profit education stocks are running schools—both physical and online—the sector also includes companies supplying educational materials (programs and textbooks). Interestingly, some of the largest (by market capitalization) are based in China and serve the Chinese market. In general, the Chinese for-profit education business has been booming in recent years, but in 2018, as the economy slowed, some schools experienced some serious slowdowns.
Meanwhile, the for-profit education industry in the U.S. is more mature, so though it has not enjoyed the rapid growth of the Chinese schools in recent years, it does have well-managed companies whose stocks are attractive.
There’s a caveat, of course. At least in the U.S., for-profit schools can be a challenging way to go with your investment dollars. That’s not to say you can’t make money there, but we’ve also seen big money-makers like ITT and Corinthian Colleges close their doors.
On the other side of that coin, however, are companies that offer educational resources, like tutoring, homework help, and textbook rentals. Especially as many schools and families have shifted to learning at home, these companies have a lot of runway to build up.
Chegg (CHGG), for example, serves more than 5 million (and counting) students with digital textbooks and study guides. Chegg is a mid-cap stock, with a market cap of roughly $9 billion. But it’s not as volatile as most mid-caps, with a beta of a mere 1.07, meaning it’s only slightly more volatile than the average stock regardless of size.
Other companies offer online curriculums, like K12 (LRN), which serves more than 115,000 K-12 students in 50 states, mainly in public schools that are under management contracts.
You can’t forget the younger set, either. Massachusetts-based Bright Horizons (BFAM) provides a range of services for small children, from employer-sponsored childcare and backup care to early education and pre-school. The company has more than 1,082 centers in 41 states and Canada.
Is it worth investing in these educational stocks?
The ultimate goal of investing is to make money. In that respect, for-profit education stocks are just the same as every other stock.
Historically, most successful investors have concentrated their investment portfolios in a few great stocks, and ridden those winners to big profits. That doesn’t mean you should put all your eggs in one basket. Our advice is that, when fully invested, you should own no fewer than five stocks, but set an upper limit at 12 or 15 stocks. There are three main benefits of good portfolio management.
- First, you can keep up with all your stocks, and track what’s happening at the companies.
- Second, you’ll get more bang for your buck.
- The third benefit of a concentrated stock portfolio: You can get in and out of the market more quickly at turning points.
Here’s a quick tidbit that most investors forget from time to time. The way you make money in the stock market is by holding stocks, not buying or selling them. Sounds obvious, doesn’t it? That’s just how the stock market works. The value of your portfolio rises when a stock you own rises. So you have to be holding on to a stock if you’re going to take advantage of its appreciation.
Not all your investments will be winners. Losses are a normal part of the business. Your goal is to ensure that your profits outweigh your losses, and the best way to do that is to have an investing discipline. Have you made profit on not-for-education stocks?