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mid-cap

Should You Consider Exiting This Holding Company- STRA

Mar 01, 2022 | Team Kalkine
Should You Consider Exiting This Holding Company- STRA

 

Strategic Education, Inc.

Strategic Education, Inc. (NASDAQ: STRA) is a holding company for educational services that provide flexible and inexpensive associate, bachelor's, master's, and doctorate programmes. In the United States and Australia/New Zealand, Strategic Education offers courses. Strayer University, Capella University, and an Australia/New Zealand section are all part of the company.

Why should Investors Exit?

  • Decline in Bottom Line: In FY21, the net income of the company was USD 55.08 million compared to USD 86.27 million in FY20, despite the increase in revenue, due to the rise in restructuring and administration expenses.
  • Generating lower return on Shareholder’s money: The company’s ROE for the FY21 was 3.2% relatively lower compared to 5.9% and significantly plummeted from 5.4% reported in FY20.
  • Regulation Risk: Strayer University and Capella University might suffer considerable monetary or other fines and penalties if they fail to comply with the numerous legal and regulatory standards for higher education institutions, including the loss of federal student loans and grants for their students.
  • Volatile market condition: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

Source: Analysis by Kalkine Group

Stock Recommendation:

Given the volatile market condition, stocks with relatively weak fundamentals and lower return generating business could witness hefty adjustment in the current valuation. Also, long-term trend is still bearish in STRA stock, as stock is trading well below its crucial 200-day SMA. Further, we have valued the stock using the EV/ Sales multiple based relative valuation methodology and arrived at a target price of USD 53.79 as of February 25, 2022. Based on the decline in the bottom line, Ukraine crisis, regulation risk, unfavourable technical indicators, and current valuation, we recommend a “SELL" rating on the stock at the closing price of USD 60.74, up 21.36%, as of February 25, 2022.

1-Year Technical Price Chart (as of February 25, 2022). Source: REFINITIV, Analysis by Kalkine Group

 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.