Strategic Education trades at $81.32 and has moved in lockstep with the market. Its shares have returned 8.7% over the last six months while the S&P 500 has gained 9.8%.
Is now the time to buy Strategic Education, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Strategic Education Will Underperform?
We don't have much confidence in Strategic Education. Here are three reasons we avoid STRA and a stock we'd rather own.
1. Weak Growth in Domestic Students Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like Strategic Education, our preferred volume metric is domestic students). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Strategic Education’s domestic students came in at 85,640 in the latest quarter, and over the last two years, averaged 4.3% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Strategic Education, its EPS declined by 5.2% annually over the last five years while its revenue grew by 4.2%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Free Cash Flow Projections Disappoint
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.
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.
Final Judgment
Strategic Education falls short of our quality standards. That said, the stock currently trades at 12.9× forward P/E (or $81.32 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now. We’d recommend looking at a top digital advertising platform riding the creator economy.
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