1 FTSE 100 stock to watch in 2021

Schools and universities may be reopening soon and that could benefit one educational stock Zaven Boyrazian has been watching.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Sun setting over a traditional British neighbourhood.

Image source: Getty Images

The Covid-19 vaccine rollout is under way, and 2021 could be the year when this pandemic comes to an end. Therefore, educational institutions such as schools and universities may soon be reopening, which is excellent news for one FTSE 100 stock that I’m watching. Let’s take a look.

A FTSE 100 giant in education

Pearson (LSE:PSON) has a pretty interesting history. What started out as a construction company during the industrial revolution has transformed itself into an educational publishing powerhouse.

Today the business provides educational content, assessments, and digital learning services to schools and universities. Anyone who’s ever ordered or used a school textbook has probably had a Pearson product pass through their hands.

The stock has recently shifted its strategy to focus more on digital content. In the most recent annual report, 66% of revenue was generated from digital materials, compared to 59% in 2017. But why does this matter?

Digital content is much cheaper to distribute and update, thus leading to improved profit margins. A closer look at the financials provides evidence to support this. If exceptional expenses are ignored, the business’s underlying profit margin has been steadily increasing from 8.9% in 2017 to 12.4%.

The impact of the pandemic

Covid-19 has certainly had a notable impact on the firm. As mentioned, many educational facilities remain closed. Combining this with exams cancellations and general economic pressure on spending, Pearson saw a 10% decline in overall revenue in 2020.

However, what’s encouraging is its online learning platform saw an 18% increase in customer spending due to new subscriptions. Whether these subscriptions will be retained once schools and universities open again is yet to be seen. But it has exposed Pearson’s digital products to more institutions, which I believe has accelerated their adoption and could attract additional subscriptions in the future.

The FTSE 100 stock is far from risk-free

Because Pearson operates at the heart of the global education system, institutions often rely heavily on it to deliver learning materials, tests, and assessments. Any delays or disruptions will have a significant impact on the firm’s brand and reputation that could be exploited by competitors.

But that’s not the only threat to its reputation. There will always be individuals who try to cheat at school. And in 2019 Pearson’s security was breached. Its Mathematics A-Level exam was leaked shortly before it was to take place nationwide. The firm did fix the flaw in its cybersecurity. But any future breaches will likely give Pearson a reputation for poor security, subsequently leading to a steady decline in market share.

FTSE 100 Stock to watch

The Bottom Line

To me, Pearson looks like it could be in for a long-overdue boost to its business. As educational institutions begin to reopen, the demand for the stock’s products and services could surge. At least that’s what I think.

Therefore, Pearson is definitely a stock to watch in my eyes. And if digital content adoption continues to grow, even after the pandemic has ended, then it may become a fantastic addition to my growth portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Zaven Boyrazian does not own shares in Pearson. The Motley Fool UK has recommended Pearson. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I invest in the FTSE 100 – or try to beat it?

Our writer has the option of investing in a FTSE 100 tracker fund. So why does he choose to buy…

Read more »

Young black woman walking in Central London for shopping
Investing Articles

£1,500 to invest in a Stocks and Shares ISA? Here’s how I’d do it

Our writer has been investing in his Stocks and Shares ISA. Here he details how he could put £1,500 in…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

2 top FTSE 100 shares I’d buy before the market rebounds!

Christopher Ruane identifies a pair of FTSE 100 shares that have both tumbled in the past year and that he…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

Here’s why the next bull market may have already begun

The UK stock market has taken the Bank of England's interest rate hike in its stride and green shoots suggest…

Read more »

Gold medal
Investing Articles

No contest! Here’s my stock of the week

An update from this company offered some relief from the economic gloom. It's this Fool's stock of the week.

Read more »

Cogs turning against each other
Investing Articles

Scottish Mortgage shares are back on the rise: is now the time to jump onboard?

Scottish Mortgage shares have risen over 25% in the past 30 days. This Fool takes a look at why and…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Why do Lloyds shares seem so cheap?

Lloyds shares have been losing ground and now look cheap on some valuations. So why has our writer removed the…

Read more »

Investing Articles

How to invest in shares to help beat inflation

Soaring prices could well outstrip our investing returns this year. I think it's more important to find shares to beat…

Read more »