Educational Development Corporation: Recent Stock Price Decline And Management Incentive Alignment Indicate Potentially Attractive Entry Point
Educational Development Corporation: Recent Stock Price Decline And Management Incentive Alignment Indicate Potentially Attractive Entry Point
Educational Development Corporation (EDUC) is a publishing company specializing in books for children. EDUC is the American co-publisher of the UK-based Usborne Books and owns Kane Miller, which publishes children’s literature from around the world. Both Usborne and Kane Miller products are sold nationally by direct sales consultants, as well as in book, toy and specialty stores.
November 24, 2021
Price (as of close on November 24, 2021)
$9.41
Rating
BUY
12- Month Target Price
Educational Development Corporation (EDUC)
Educational Development is a publishing company specializing in books for children. It has a strong balance sheet and cash flows and pays consistent dividends. It has had strong revenue growth over the last 7 years. We expect this trend to continue. The stock has fallen recently, and we believe now is an excellent entry point. We are initiating with a BUY rating and a 
.
Investment Thesis
➢ Educational Development Corporation is a profitable publishing company which has demonstrated impressive revenue growth of nearly 1000% over the last seven years.
➢EDUC benefited from the stay-at-home environment. Active consultants increased significantly during 2020 (fiscal 2021) This caused a dramatic increase in sales during this year. While sales are expected to fall as children are back to school, sales remain up dramatically from fiscal 2020.
➢We believe the overall positive growth trend has been impressive and should continue. EDUC’s stock price has fallen due to an overreaction in its revenue falling during the return to more normal environment. We believe this is an overreaction and is a buying opportunity.
➢EDUC is undervalued at just 8.32 times our 2022 adjusted EPS of $1.13 and only 7.71 times our 2023 EPS of 1.22. Our price target is based on a conservative 15 times P/E relative valuation blended with a DCF model price.
Primary Risks
➢ EDUC’s recent fall in sales has been expected due to the change in the stay-at-home environment. If this fall is larger than expected or continues, it could have negative implications for the stock.
➢The increase of active consultants and sales was impressive from 2020 – 2021. We expect the number of consultants to fall this year – but remain elevated. If consultants return back to the levels of FY2020, this will impact future growth expectations.
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