Few companies founded over 100 years ago can claim to be ‘growth stocks‘ today. But this hot UK stock, founded in 1844, the same year Charles Darwin started writing On the Origin of Species, has done exactly that.
In a twist of corporate evolution, Pearson (LSE:PSON) is transforming itself from a dull textbook publisher into a “digital-first company” for “life-long education”.
CEO Andy Bird, previously an executive at Disney, told the Financial Times this week that Pearson has become a “growth stock” since he took the reins two years ago.
And it appears people are taking notice. The proportion of the total float held by US shareholders has doubled since Bird took over, from 10% to 20%. Meanwhile, CEO of the ARK Invest ETF Cathie Wood – known for buying Silicon Valley growth stocks like Tesla, Zoom, and Roku – bought 23,300 shares in Pearson in Q4 2021.
Unlike many of Wood’s holdings, Pearson is already profitable. Another difference comes in the stock price movement: it has gone up 50% in the year to date. As a textbook published by Pearson might say, compare and contrast that with ARK Invest’s 60% price crash this year!
Hire education
In a move to digitalise its offerings, the company now sells e-textbooks through a subscription service called Pearson+. For $14.99 a month, students can access 1,500 titles on up to two devices.
It has also recently made bold moves to establish itself in the workforce training market. The company acquired Credly this year, a service for “recognising achievements” by “issuing and managing digital credentials”. In addition, Pearson bought out Faethm, a data and analytics solution that promises to help employers and policymakers “navigate the Fourth Industrial Revolution and the Evolution of Work”.
Andy Bird told the FT: “There used to be higher education. There’s now hire education.”
The sales pitch is an enticing one. Bird said the company could revolutionise adult learning through technology-enabled training pathways. At the same time, Pearson can count on the “real sales and real profits and real cash flows” of its already established arms, according to Bird.
Oldest trick in the textbook…
Of course, Pearson is keen to focus investors’ attention on the workforce skills division of its company. According to its interim results, this segment grew by 6%. But bear in mind the workforce skills division only makes up 7% of Pearson’s sales currently.
Meanwhile, the far chunkier higher education unit – accounting for 21% of sales – softened by 4%.
Is the talk about breaking into the workforce training market all just smoke and mirrors?
One analyst, who chose not to be named, told the FT this week: “In workforce solutions they are so far behind — they don’t really have anything.”
In addition, Pearson faces stiff competition from the likes of 2U and Coursera.
To its credit, unlike most growth stocks, it does pay a dividend (with a forward yield of 2.5%). In addition, it looks very reasonably priced even after shooting up 50% this year, with a price-to-earnings-growth (PEG) ratio of 0.61.
However, I’m left cold by grandiose terms like “the Fourth Industrial Revolution” and the “Evolution of Work“. And these seem to be the ideas that form the basis of Pearson’s growth story.
Given that I’m unmoved by the growth narrative, and it’s too expensive to be a value stock, I can’t give Pearson a passing grade so won’t buy.
