Educational Development Corp. (EDUC) is a publishing company specializing in books for children. EDUC is the exclusive US trade co-publisher of the line of educational children’s books produced in the UK by Usborne Publishing Ltd., notes Doug Gerlach, editor of SmallCap Informer.

The company also exclusively publishes books through its ownership of Kane Miller Book Publisher. EDUC's current catalog contains more than 2,000 titles, with new additions semi-annually.

The company offers various books, including Touchy-Feely board books, activity and flashcards, adventure and search books, art books, sticker books, and foreign language books, as well as science and math titles, and chapter books and novels.

Both Usborne and Kane Miller products are sold via a network of 57,600 active independent consultants using a combination of direct sales, home parties, book fairs, and Internet-based social media platforms.

The company’s publishing division markets books to bookstores, toy stores, specialty stores, museums, and other retail outlets throughout the country

Educational Development Corporation was founded in 1965 and is headquartered in Tulsa, Okla. In its history, EDUC has twice been recognized by Forbes Magazine as one of “The 200 Best Small Companies in America” and three times by Fortune Magazine as one of “America’s 100 Fastest Growing Small Companies.”

Since 2011, revenues have grown at an annualized rate of 28.0% while EPS have grown 36.2% a year. Revenues and EPS slowed in 2012 and 2013, but recovered robustly through 2018 before experiencing another soft year in 2019.

Educational Development saw sales jump in 2020, with trailing 12-month revenues up 58.4% on an EPS gain of 89.0% as of the third quarter ending November 30, 2020. The company said that it had experienced a significant increase in demand for educational materials in homes during the pandemic.

On March 11, 2021, the company pre-announced results for the month of February as well as the quarter and fiscal year ended February 29, 2021.

Net revenues in February 2021 were $13.0 million, an increase of $6.3 million, or 94% over net revenues achieved in February 2020 of $6.7 million. Revenues for the fourth quarter were $40.3 million, or 100% higher than net revenues reported in the fourth quarter last year.

The company also reports that net revenues for fiscal 2021 totaled approximately $204.6 million, or 81% higher than net revenues reported for fiscal year 2020 of $113.0 million. The fourth quarter is typically the company’s slowest of the year, so these results are quite strong.

For the purposes of the accompanying stock study, we have used only the EPS for the first three quarters of the year which already exceed the full-year 2019 results by 83.8%.

Some data points are omitted but some other values have been estimated to provide a firm basis, we believe, for the year’s likely results. We are projecting future annual growth of 15% for the company over the next five years.

We don’t expect the uplift from the pandemic to last indefinitely, but the boost should provide a near-term benefit to results.

EDUC’s pre-tax profit margins have been on a general uptrend since 2013, and compare favorably to companies like John Wiley & Sons and Scholastic Corp. The company’s debt has been declining as the company has deployed its ample cash flow to improve its balance sheet.

Long-term debt as of the last reporting period, Q3 2020, was $10.6 million compared to $17.8 million at year-end 2019. EDUC’s return on equity has also been strong, trending up and averaging near 30% in the last five years.

The dividend payout ratio has ranged from 25% to 30% over the past three years (including our EPS estimate for FY 2020), providing good support for the current 2.4% yield. The indicated dividend is 30% higher for 2021 than was paid in 2020.

EDUC’s strong close to its 2020 fiscal year has pushed fundamentals out in front of the stock valuation. The current P/E is around 13.5 (based on estimated TTM EPS), around the stock’s average P/E of 12.2 of the last five years. The projected P/E is 11.7.

In a superheated market, this stock has a rare reward-to-risk level. We see the stock as a buy up to $19, and the current price of $16.89 offers a 4.1-to-1 upside/downside ratio and a 21.5% annualized rate of total return over the long-term.

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