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The Rise in Education Tech Companies

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The Rise in Education Tech Companies
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Education tech companies are companies that offer education services using online tutorial classes such as online classes or downloadable videos and documents. This type of companies has benefits and disadvantages. For one, the traditional classroom setting has the advantage of giving students easy access to teachers as well as setting an environment where students are placed in an environment conducive for learning. On the other hand, online classes offer the major benefit of convenience as well as being able to offer students different paces in learning. For relatively less – brighter students, they can cover the content at a slower pace and thus benefit from still learning.

Recently, there has been a surge in the rise of education tech companies such as Chegg and K12 Incorporated. The growing popularity is a result of the convenience that online learning platforms offer. In the current world in which living expenses are significantly higher and individuals are working day jobs, online courses and classes offer students the convenience of being able to work and still obtain useful skills to further themselves.

It does not end there, as these education tech companies are enjoying a surge in the financial markets as well. One good case of this would be Chegg Incorporated (CHGG; NYSE). This is an American education technology company that is based in California. The stock has seen a rise in price of 36% over the last 6 months. This is especially interesting when we consider the unique circumstances under which this price rise occurred.

The US and China have been involved in a trade war with neither side showing any signs of backing down. Statistically, the two countries are the world’s two largest trading partners. The trump administration claimed that international trade between the two nations was extremely lopsided with the Chinese importing US$130 billion worth of goods from the US while the US imported a whooping US$500 billion worth of goods from China. This resulted in a massive trade deficit which the Trump administration responded to by imposing tariffs on select goods imported from China. The Chinese responded, imposing a 25% tariff on select good imported from the US which came into to effect on January 1st, 2019.

This trade war had the impact of declining prices in stock markets in almost all stocks with some stocks decreases as much as 40% in the second half of 2018. This was a result of the loss of confidence from investors in the market. The trade war would likely result in lower international trade between the two superpowers. This implies a downturn in the economy and as such lower profits from firms and thus investors would likely short their positions on their securities. It followed that local investors (as well as those involved in international share trading) would be looking for stocks that would manage to hold their price, or at least fall marginally in comparison to other stocks.

During this period, Chegg saw a slight decline of 7% over a 5-month period from July 31st, 2018. This shows an impressive resistance in a market that was visibly bullish. An interesting theory as to why these education company stocks seem to be growing is a result of the nature of their product. These companies offer education services which, arguably, can be considered necessary in the current world. As such, although they are prone to downturns in the economy (as are all businesses), the correlation between their income and the movement in stock prices is lower than most companies. This makes them a prime stock to invest in especially in bullish periods when investors lose confidence in the markets. Investors should consider adding these stocks to their portfolio.

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