A Great Stock For Back-To-School Season
I just dropped my kids off for their first day back at school.
Many parents are doing the same.
Back-to-school shopping is always an adventure.
But I started thinking about whether any of these companies trade on the stock market.
And one really jumped out at me.
There’s no company more tied to education and schooling than Scholastic Corp (ticker: SCHL).
When I was in school (many years ago), the Scholastic Book Fair was a huge deal.
It’s still a big deal, but Scholastic does so much more.
Most of Scholastic’s revenue comes from book publishing and distribution (about 60%).
However, Scholastic also sells education resources and children's entertainment.
The entertainment business is really taking off for Scholastic.
It acquired 9 Story Entertainment, which owns popular shows including Daniel Tiger’s Neighborhood, Wild Kratts, and the Magic School Bus.
Entertainment brought in over $60 million in revenue last year, which doesn’t seem like much.
But it’s more than triple the amount of revenue it brought in 2 years ago.
It hasn’t been all great news for Scholastic though.
Its Education Solutions segment, which provides education tools to schools, has lost almost 20% of its revenue in the past 2 years.
The Education Solutions segment accounts for a decent chunk of total revenue at almost 20%.
School budget cuts coupled with COVID funds expiring have really hurt Scholastic in the past few years.
But the company is on a major rebound.
Since last summer, Scholastic’s stock price has more than doubled.
What’s the cause?
A few things are going on.
First, Scholastic is streamlining its business.
Last year, Scholastic made a ton of cash by selling some of its property to real estate firms and leasing them back.
Scholastic isn’t in the real estate business, and the proceeds from the sales allowed Scholastic to drastically reduce its debt and buy back $300 million in shares.
A company buying back shares is a major signal of company management and the board believing in the stock price going forward.
The education company also lowered costs and raised its operating margin by 50 basis points, which demonstrates management knows what it’s doing.
Second, Scholastic’s core business of book publishing and distribution remains strong.
Despite struggles in the education industry, school book fairs and book clubs remain incredibly popular with students and parents.
Last year, book fairs brought in an extra $27 million in revenue to Scholastic.
Why am I optimistic about Scholastic?
Despite the recent run-up in price, Scholastic is still cheap.
Its price-to-sales ratio of 0.63x is one of the lowest in the industry and still below Scholastic’s historical average.
So we’re getting the stock at a great price.
Plus, Scholastic just announced it’s raising its dividend by 25%.
It’s the first time Scholastic has raised its dividend since 2022.
And even if you don’t care about income, a company raising its dividend is a great sign the company is optimistic about its future.
Education is a tough industry right now.
But Scholastic’s brand recognition paired with its resilient core business makes it a great stock for your portfolio.
Summer is almost over… what stocks are you looking at right now?
Coach Parker
Category: Stocks
