Is Stride's Expanding EBITDA Margin a Sign of Operating Leverage?

Stride, Inc. LRN continues to deliver robust margin growth. In third-quarter fiscal 2025, the company reported a robust performance with adjusted EBITDA rising 40% year over year to a record $168.3 million. This expansion significantly outpaced the company’s 17.8% revenue growth, indicating that it may be benefiting from meaningful operating leverage.

Gross margin for the quarter climbed 190 basis points to 40.6%, with management guiding to a 200-basis-point improvement for the full year. This indicates not only enrollment-driven top-line growth, up 21% year over year, but also a successful multi-year focus on cost discipline. Chief financial officer Donna Blackman pointed to efficiency efforts that began two years ago, noting the continued contribution to better flow-through and margin improvement.

Importantly, Stride is achieving this leverage without significant increases in marketing spend. Enrollment growth has been achieved through more efficient media placement and messaging optimization rather than expanding the budget. This hints at favorable unit economics, more students onboarded with lower customer acquisition costs.

That said, management is balancing margin expansion with reinvestment. CEO James Rhyu emphasized continued investment in tech platforms, teacher support tools and student socialization initiatives. These reinvestments are crucial for sustaining growth and adapting to evolving educational needs.

Stride’s rising EBITDA margin reflects real operating leverage — the result of scale, improved efficiency and strategic resource allocation. If these trends continue, the company could be structurally more profitable over time, even as it reinvests to future-proof the business.

Can Stride’s Efficiency Edge Hold Up Against Rivals

Stride expanding EBITDA margin puts it ahead of some peers in the education space, notably Adtalem Global Education ATGE and Strategic Education, Inc. STRA, both of which are navigating their own efficiency and profitability challenges.

Adtalem has made strategic acquisitions in healthcare education, giving it scale and relevance in high-demand fields. However, its margin expansion has been gradual, constrained by integration costs and restructuring charges. While ATGE’s adjusted EBITDA is stable, the growth rate trails Stride's improvement. Adtalem continues to rely heavily on cost controls rather than organic operating leverage.

Strategic Education, operating universities like Capella and Strayer, emphasizes flexible learning models. While it maintains solid EBITDA margins, growth has been uneven. STRA’s revenues are flat to modestly growing and operating leverage has stalled due to persistent enrollment headwinds and pricing pressures in higher education.

In contrast, Stride is achieving both enrollment and margin growth, a rare combination in the sector.

LRN’s Price Performance, Valuation and Estimates

LRN’s shares have gained 104.6% in the past year compared with the industry’s rise of 14.8%.

Price Performance

LRN stock is currently trading at a premium. It is currently trading at a forward 12-month price-to-earnings multiple of 18.26X, up from the industry average of 16.46X.

P/E (F12M)

The Zacks Consensus Estimate for fiscal 2025 earnings per share increased to $7.09 from $6.96 in the past 60 days.

Moreover, the company’s earnings for fiscal 2025 and 2026 are likely to witness robust growth of 51.2% and 9.4%, respectively.
 
The company currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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