The last year’s been a living nightmare for FTSE 100 stock Pearson (LSE:PSON). The publishing giant’s collapsed 33% in value on market pressures, major contract losses, and worries over artificial intelligence (AI) snatching its business.
But could the Pearson share price recover strongly in 2026? If City forecasts are accurate it might — 11 analysts have slapped an average 12-month price target of £12.07 on the company. That represents a 34% rise from current prices.
I’m not convinced, though. Here I’ll explain why I’m avoiding Pearson shares like the plague.
No value stock
Market panic often leads to some top-quality shares being unfairly oversold. Picking these up can have enormous advantages for buyers, as (in theory) they can deliver huge profits when investors wake up and re-rate the share.
The trouble is, Pearson doesn’t fit into this category for me. For one, it doesn’t look especially cheap. At 904.2p per share, the publisher trades on a forward price-to-earnings (P/E) ratio of 13.8 times.
That’s lower than the 10-year average of roughly 16 times, true. But it doesn’t smack of ‘bargain basement’ territory, in my opinion. And it doesn’t leave significant scope for a price rebound, either.
In fact, given the enormous challenges it faces, I think the company could — or indeed, should — be trading much more cheaply.
AI threat
Pearson’s done many things since its creation in 1844, including drilling for oil and manufacturing porcelain. But during the 1990s it pivoted solely towards the education sector, becoming one of the world’s largest suppliers of textbooks and testing to schools, colleges and universities.
This creates a massive problem nowadays, though, as it leaves the firm in danger of being mowed down by AI. Accuracy issues continue to plague these new technologies, but rapid progress creates a serious threat. They also offer capabilities that standard textbooks and the like don’t, such as the ability to create an interactive experience for students.
Pearson’s not sitting on its hands, and is developing its own suite of AI tools to turn this into an opportunity. It’s seeing some success here, with sales at its Virtual Learning unit rising 20% in Q4. Digital and AI enhancements are more heavily used in this part of this business.
But on balance, I think AI creates more danger over the long term than opportunity. Last year, Pearson’s US rival Chegg slashed 45% of its workforce due to what it described as “the new realities of AI.”
High risk, high reward?
Unfortunately for the FTSE firm, the rapid advancement and adoption of AI isn’t the only threat to future earnings. Pearson operates in a highly competitive field, and last year it’s shares dived after it lost a major American student assessment contract in New Jersey. Similar setbacks are an ever present threat.
Pressures on education budgets across its markets represents another significant danger. With public finances stretched and costs rising, governments are likely to keep their spending on learning materials dialled down.
Pearson’s early AI successes may tempt some investors after that recent share price weakness. But I won’t be adding the FTSE firm to my portfolio right now.
