Strategic Education (STRA)

Higher education company Strategic Education (NASDAQ:STRA) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 4.6% year on year to $319.9 million. Its non-GAAP profit of $1.64 per share was 25.8% above analysts’ consensus estimates.

Company Overview

Formed through the merger of Strayer Education and Capella Education in 2018, Strategic Education (NASDAQ:STRA) is a career-focused higher education provider.

A whole industry has emerged to address the problem of rising education costs, offering consumers alternatives to traditional education paths such as four-year colleges. These alternative paths, which may include online courses or flexible schedules, make education more accessible to those with work or child-rearing obligations. However, some have run into issues around the value of the degrees and certifications they provide and whether customers are getting a good deal. Those who don’t prove their value could struggle to retain students, or even worse, invite the heavy hand of regulation.

Strategic Education's competitors include Adtalem Global Education (NYSE:ATGE), Grand Canyon Education (NASDAQ:LOPE), Perdoceo Education (NASDAQ:PRDO), and American Public Education (NASDAQ:APEI).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Strategic Education’s sales grew at a sluggish 4.2% compounded annual growth rate over the last five years. This was below our standard for the consumer discretionary sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Strategic Education’s annualized revenue growth of 6.9% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s revenue dynamics by analyzing its number of domestic students and international students, which clocked in at 85,640 and 18,808 in the latest quarter. Over the last two years, Strategic Education’s domestic students averaged 4.3% year-on-year growth while its international students averaged 1.4% year-on-year growth.

This quarter, Strategic Education reported modest year-on-year revenue growth of 4.6% but beat Wall Street’s estimates by 1.7%.

Looking ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Strategic Education’s operating margin has shrunk over the last 12 months, but it still averaged 13.5% over the last two years, solid for a consumer discretionary business. This shows it generally manages its expenses well.

This quarter, Strategic Education generated an operating margin profit margin of 11.6%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Strategic Education, its EPS declined by 5.2% annually over the last five years while its revenue grew by 4.2%. However, its operating margin actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

In Q3, Strategic Education reported adjusted EPS of $1.64, up from $1.16 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Strategic Education’s full-year EPS of $5.73 to grow 6.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Strategic Education has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.1% over the last two years, slightly better than the broader consumer discretionary sector.

Strategic Education’s free cash flow clocked in at $49.28 million in Q3, equivalent to a 15.4% margin. This result was good as its margin was 1.7 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts’ consensus estimates show they’re expecting Strategic Education’s free cash flow margin of 10.5% for the last 12 months to remain the same.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Strategic Education historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.9%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Strategic Education’s ROIC has increased. This is a good sign, and we hope the company can continue improving.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Strategic Education is a profitable, well-capitalized company with $172.6 million of cash and $117.7 million of debt on its balance sheet. This $55 million net cash position is 3.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Strategic Education beat analysts’ EPS expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. On the other hand, its number of domestic students missed. Zooming out, we think this quarter featured some important positives. The stock remained flat at $74.79 immediately following the results.

Updated: December 3, 2025 at 10:09 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Strategic Education, you should also grasp the company’s longer-term business quality and valuation.

Strategic Education falls short of our quality standards. For starters, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. On top of that, Strategic Education’s number of domestic students has disappointed, and its Forecasted free cash flow margin for next year suggests the company will fail to improve its cash conversion.

Strategic Education’s P/E ratio based on the next 12 months is 12.7x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $98.33 on the company (compared to the current share price of $79.63).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.