Among the most popular online courses in this pandemic year is one titled How to Learn Online. Nearly everyone from kindergartners to advanced degree candidates have had to spend some (or most or all) of their class time online. Many of these courses are offered by colleges and universities through services like Coursera and edX.
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However, three publicly traded education and training companies also have seen a sharp pickup in their businesses this year. Two are based in Beijing and offer after-school programs for K-12 students, both online and in learning centers across China. The U.S.-based company offers a variety of online services. All three have market caps of more than $10 billion, and all have seen their share prices rise by at least 50% in 2020.

With vaccines coming available to stop the spread of COVID-19, will demand for online education slip as pre-collegiate students return to classrooms, or will the gains that online instruction made this year carry over to more growth in 2021?

TAL Education

TAL Education Group (NYSE: TAL) operates more than 1,600 learning and service centers in China and one in the United States. The company offers K-12 after-school tutoring services throughout China, both in-person and online. The company came public in 2010 at $10 per American depositary share (ADS) and traded under the ticker symbol XRS. The company changed its ticker symbol to TAL in 2016. Each ADS is equal to two shares of Class A common stock.

The ADSs traded below the initial public offering price until October of 2013, but since then they have never looked back. The stock rose to an all-time high this year, up nearly 3,000% since the IPO, and now trades up about 2,700%. Its market cap is around $43.2 billion.

Earlier this week, the company announced a $3.3 billion investment led by Silver Lake Partners. The investment comprises $2.3 billion in convertibles notes and $1 billion in newly issued Class A common shares.

So far in 2020, the ADSs have added more than 48% to trade around $72 apiece. The 52-week range is $44.24 to $83.68. The stock trades about 14% below the 52-week high and have an implied upside of just over 15% based on the consensus price target of $82.86. The company’s fiscal year ends in February, and for the 2022 fiscal year, it trades at 72 times expected earnings of $1.15 per ADS. At this multiple, TAL could be characterized as overvalued, but analysts remain bullish.

Chegg Inc. (NYSE: CHGG) operates a direct-to-student learning platform that includes digital products and services and required materials such as print and digital textbooks. The company came public in November of 2013 at $12.50 a share and raised $187.5 million in the IPO. Unfortunately, the share price dropped by nearly 25% before the day was out. The stock did not trade above the IPO price until April of 2017, and since then, the shares have added about 850% to their price. The company’s market cap is around $11.8 billion.
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For the year to date, Chegg’s stock has added more than 140%, and it traded Wednesday at around $91.20, in a 52-week range of $25.89 to $95.20. Shares trade about 4% below their 12-month high and at the current trading price imply a gain of 2.5% based on the consensus target. Based on expected 2021 EPS, Chegg stock trades at a multiple of around 57 times earnings. Looking out into 2022, that multiple to expected earnings drops to 44 based on an EPS estimate of $2.07. At these multiples, Chegg could be characterized as overvalued and nearly fully priced.

GSX Techedu

Also based in Beijing, GSX Techedu Inc. (NYSE: GSX) offers online K-12 after-school tutoring services in China. The company came public in June 2019 at $10.50 per ADS. By July, they had risen above the IPO price and soared to an all-time high of nearly $142 in August of this year. They dropped sharply from there, following the GSX’s confirmation of an SEC investigation. In any event, the stock is set to close the year up more than 400%. The company’s market cap is around $12.5 billion. Three ADSs represents two Class A ordinary shares.

GSX ADSs have added more than 143% to their price this year to trade at around $53 currently in a 52-week range of $22.70 to $141.78. Based on that high, shares are looking at a potential gain of about 62.5% and the potential upside based on the price target is just over 25%. The less good news is that the shares trade at more than 140 times expected 2022 earnings.

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