A Fresh Look at Strategic Education (STRA) Valuation Following Analyst Buy Calls and Sophia Learning Growth

If you have been watching Strategic Education (STRA), the latest round of analyst updates probably got your attention. Following fresh earnings data showing mixed student enrollment trends but standout growth in the company’s Sophia Learning segment, two major analysts have reiterated their buy ratings and called out the company’s fundamentals. This flurry of renewed interest comes on the heels of adjusted earnings per share beating expectations, hinting that the company may be turning a corner just as investors are weighing its next move. While some segments, like U.S. Higher Education, have seen enrollment slip, the increase in both subscribers and revenue at Sophia Learning appears to be shifting the conversation. These green shoots have arrived at a time when the wider stock performance has underwhelmed, with shares down nearly 10% over the past year. Recent weeks, though, have seen signs of improved momentum, as the stock has rebounded over the past month. This shift suggests some investors might be warming up to a changing valuation story. After a year of uneven performance but a surge in analyst support, the question is whether Strategic Education is setting up for a true turnaround. Is there real value to unlock here or has the market already baked in optimism from Sophia Learning’s growth?

Most Popular Narrative: 19.3% Undervalued

According to the most widely followed narrative, Strategic Education is currently viewed as significantly undervalued by analysts, who believe its price does not fully account for future profit and margin improvements.

Strategic Education is benefiting from strong enrollment growth, particularly through its corporate partnerships. This could drive continued revenue growth as employer-affiliated enrollment increased by 16% in 2024. The Education Technology Services segment is experiencing significant growth, with revenue increasing by more than 30% in 2024, primarily through the Sophia Learning direct-to-consumer portal and expanding corporate partnerships. This expansion has the potential to boost earnings.

Curious why the market might be missing the big picture? The narrative points to bold growth assumptions and a future profit profile that is usually seen in high-flyers. The real surprise is that analyst models bank on improvements that, if achieved, could transform the company's valuation story.

Result: Fair Value of $102.67 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, risks remain, such as regulatory shifts in Australia or rising costs in education technology. These factors could challenge the bullish case for Strategic Education.

Find out about the key risks to this Strategic Education narrative.

Another View: What Does the SWS DCF Model Say?

Taking a different angle, our SWS DCF model also points to undervaluation, adding weight to the idea that Strategic Education could be trading below its true worth. However, does this approach capture everything?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Strategic Education for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Strategic Education Narrative

If you have a different perspective or want to dive deeper, you can quickly build your own view on the data in just a few minutes. Do it your way

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding Strategic Education.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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