Stride (LRN)

Online education Stride (NYSE:LRN) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 17.8% year on year to $613.4 million. The company’s full-year revenue guidance of $2.38 billion at the midpoint came in 1.6% above analysts’ estimates. Its GAAP profit of $2.02 per share was 0.7% above analysts’ consensus estimates.

Company Overview

Formerly known as K12, Stride (NYSE:LRN) is an education technology company providing education solutions through digital platforms.

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Stride’s primary competitors include Pearson PLC (NYSE:PSO), Chegg (NYSE:CHGG), Grand Canyon Education (NASDAQ:LOPE), 2U (NASDAQ:TWOU), and private companies Connections Academy and Edmentum.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $2.29 billion in revenue over the past 12 months, Stride is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, Stride’s sales grew at an incredible 17.3% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows Stride’s demand was higher than many business services companies.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Stride’s annualized revenue growth of 12.4% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Stride reported year-on-year revenue growth of 17.8%, and its $613.4 million of revenue exceeded Wall Street’s estimates by 3.6%.

Looking ahead, sell-side analysts expect revenue to grow 7% over the next 12 months, a deceleration versus the last two years. Still, this projection is noteworthy and indicates the market is baking in success for its products and services.

Stride has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 10.9%, higher than the broader business services sector.

Analyzing the trend in its profitability, Stride’s operating margin rose by 9.7 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, Stride generated an operating profit margin of 21.3%, up 4.4 percentage points year on year. This increase was a welcome development and shows it was more efficient.

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.

Stride’s EPS grew at an astounding 62.3% compounded annual growth rate over the last five years, higher than its 17.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Stride’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Stride’s operating margin expanded by 9.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Stride reported EPS at $2.02, up from $1.60 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Stride’s full-year EPS of $6.41 to grow 7.9%.

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.

Stride has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 8.5% over the last five years, better than the broader business services sector.

Taking a step back, we can see that Stride’s margin expanded by 14.2 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Stride’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 16.8%, slightly better than typical business services business.

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. Fortunately, Stride’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Companies with more cash than debt have lower bankruptcy risk.

Stride is a well-capitalized company with $723.7 million of cash and $561.8 million of debt on its balance sheet. This $161.9 million net cash position is 2.7% 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.

We enjoyed seeing Stride beat analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad its full-year revenue guidance exceeded Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 5.3% to $149.98 immediately following the results.

Updated: May 22, 2025 at 10:54 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Stride.

Stride is truly a cream-of-the-crop business services company. First of all, the company’s revenue growth was exceptional over the last five years. On top of that, its rising cash profitability gives it more optionality, and its expanding adjusted operating margin shows the business has become more efficient.

Stride’s P/E ratio based on the next 12 months is 20.6x. Looking at the business services space today, Stride’s qualities as one of the best businesses really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $157.75 on the company (compared to the current share price of $154.01), implying they see 2.4% upside in buying Stride in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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