Pearson (LSE: PSON) is a London-based multinational publishing and education company. Pearson was a high-performing growth stock for the first half of this decade, but suffered its sharpest decline since 1987 in the fall of 2015. This was primarily due to a drop in its profit forecast as the company reoriented its focus on the global education market.
Pearson plunged to a 10-year low in late 2017 but has since been on a promising two-year rebound. This was derailed early this year after the company slashed its United States Higher Education Courseware (HECW) revenue forecast. Students in the US have moved to second-hand textbooks and web materials over pricier options. New textbooks carry an especially high price tag.
Last year Pearson looked like a solid option for growth investors, but it stalled in the second half of the year. Investors should not let its early January setback drive them away from the stock. Pearson offers nice value as investors kick off the summer of 2019. Today I am going to examine some of the reasons why I’m bullish on Pearson.
The company’s reorientation into the global education market has seen it pitch off publications like The Economist and Financial Times. In the education sector Pearson possesses a narrow moat, but the growth of this market is worth getting excited about. Access to education is ballooning, and the adoption of consumer electronics around the world is allowing for a significant shift to unconventional learning methods.
A 2018 report from market research firm Grand View Research projected that the smart education and learning market would be worth USD $423.2 billion by 2025. This represents a compound annual growth rate (of 15.2% over the forecast period; 2018 to 2025. Awareness of new learning modules and a lack of resources in developing regions are two major barriers that may limit market growth going forward. Those hurdles aside, the global education market is poised for huge growth over the next decade. Global Market Insights, another top market research firm, projects that the e-learning market will surpass USD $300 billion by 2025.
Pearson is off to a good start in 2019. The company released its first quarter 2019 results on 26 April. Its North American business posted 2% sales growth. This bolstered overall revenue, which also moved up 2% from the prior year. The North American business saw improvement due to growth in online programme management, virtual schools, and professional certification. However, US HECW has continued to be a drag on earnings.
The company is set to launch a suite of digital products and capabilities ahead of the 2019 school season. These include an AI-powered maths tutor mobile app and an AI-powered essay market.
Shares of Pearson threatened technically oversold territory in early June but have since rebounded. This should be viewed as a long-term target for growth investors, which is why I’m zeroing-in on the stock in July. The company has shown marked improvement in recent quarters and the education sector is primed for substantial growth in the coming years.
Ambrose has no position in any of the shares mentioned. 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.