While most investors endured a difficult 2022, anyone holding Pearson (LSE: PSON) shares would have been laughing.
Today, I’m taking a closer look at how well the publishing and educational giant performed and how much money I would have made if I’d been skilled (or lucky) enough to buy the stock.
When learning pays
Let’s not beat about the bush. Pearson shares rose 53% last year.
So if I’d invested £1,000 in Pearson shares at the beginning of 2022, I’d have a capital gain of roughly £530 by the end of December (minus any costs).
If we’re using yesterday’s date and going back 12 months, I’d have only slightly less, £500 or so.
For simplicity, the returns mentioned above don’t include any contribution from dividends. So the result is actually even better than this in both cases. Lovely!
Top of the stocks (almost)
Clearly, this is a great outcome, considering how other companies in the FTSE 100 fared in 2022. Look at the housebuilders, retailers and anything remotely tech-related for proof of that.
In fact, Pearson’s performance left it in second place when it comes to the best-performing top-tier stocks. It was only narrowly beaten by defence giant BAE Systems. I’m pretty sure I don’t need to explain why the latter proved so popular among investors last year.
Why did Pearson shares perform so well?
Unsurprisingly, the company has been consistently beating expectations. Indeed, this month’s trading update said group underlying sales had grown 5%. Benefitting from good trading in English Language and Virtual Learning, Workforce Skills and Assessment & Qualifications, adjusted operating profit rose 11% to £455m.
Pearson also reflected that it had been “reshaping” its portfolio for growth. Part of this involves switching to a subscription-based digital service. As odd as it may sound, this is essentially no different from the business model giants like Netflix and Amazon have pursued.
More to come?
Sadly, I didn’t own this stock in 2022 (and still don’t). So the dilemma for me is whether Pearson shares are worth buying now.
The company is clearly a far more efficient beast. In fact, it’s already said it’s “on track to deliver approximately £120m of cost efficiencies in 2023“. As difficult as the cost-of-living crisis has been, I’m also inclined to think that a lot of people will be looking for ways to stand out in the job market if we do see a protracted recession.
Against this, it could be argued that this good news is now reflected in the price. A value stock for years, Pearson now trades at 16 times forecast earnings for FY23. That’s still not expensive but I wonder whether investors will stick around (and not take profits) when growth stocks come back into fashion.
Not for me
Overall, it’s important to acknowledge just how far Pearson has come from where it once was. The relatively defensive nature of the education sector is also something I find attractive, even if the dividend stream here isn’t quite as generous as it used to be. The forecast yield is 2.5% as I type.
As someone keen to take advantage of the market’s temporary hissy-fit and buy up quality growth stocks on the cheap however, buying Pearson shares now isn’t a priority for me.
