Why I believe K12 Inc. will enter a new growth stage

*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. 

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With campuses taking classes online due to the coronavirus, many students who once haven't took a single course online are now being forced to take classes online. As a college student, this is the reality that I'm experiencing. 

From my experience of taking online courses, so far it's been an easy adjustment. Many of my assignments were online from the beginning so that didn't change. For the assignments that were physical, we had to use Adobe Scan to scan documents and turn them in on Canvas. While keeping up with assignments could be harder because professors change things around and that it's much harder to get in contact with the professor, the move to online has made life more convenient. 

Some of the biggest benefits I've experienced from online learning is that:

• not having to commute
• getting to wake up later
• being allowed to go to the bathroom/get snacks and eat without disturbing the class
• getting more intimate time with my group mates during group sessions with little to no distractions

Now, as more and more students start realizing that online learning is a lot better than learning on campuses, the demand for online learning will increase by a lot more. With many companies benefiting tremendously, one company that I've been watching for years is now experiencing its newest growth catalyst. This company is K12 Inc. (NYSE: LRN)

The Investment Case

K12 is the most recognizable brand when it comes to online learning for people when they think of an online learning service that caters to people in grades K-12. Plus, it's in the name as well! 

Because kids are getting more comfortable with online learning, parents might consider K12 over online public school as K12 has been shown to provide great results. Plus, for kids that get bullied at school, online learning can help them escape that as they can stay at home and learn, allowing them to focus better in their studies. 

Now, parents would usually not want to pay money for alternative forms of education for their kids if public school is free. Well, K12 is free for kids K-12. This is the biggest selling point for the company. 

For the financial picture, the company is free cash flow positive but the direction for the free cash flow varies as last year, the company had lower free cash after a consistent three years of increasing free cash flow. In their balance sheets, they have $211 million in cash and $49 million in debt, which puts the company's balance sheet strong. 

Risks

In the online learning space, there's a lot of players. It's hard to differentiate as each competitor has its unique features. K12 does offer less courses than the traditional high school, which might deter customers from the platform and lead them to the public school system or other online learning platforms.

Photo by Nick Morrison on Unsplash

Also, while this time period does expose a big percentage of the population to online learning, many parents and kids might still prefer going to a physical campus rather than enjoy the convenience of online learning. 

Accounting fraud is another potential risk. Especially with Luckin Coffee's recent fiasco where the company faked their financials, investors should be on edge as accounting can happen to any company. 

Conclusion

I believe that K12 is a unique player in the online learning space that can benefit tremendously as more students K-12 experience online learning and its benefits due to the lockdowns from the coronavirus. While there are many risk when it comes to investing in emerging industries that have many players, the company's strong balance sheets will help them survive the competition and hopefully thrive with its unique brand name.