2U Inc. (TWOU, Financial) is the market leader in online education and degrees. They work with over 80 universities, including top tier colleges such as Harvard, Cambridge and even MIT.
Is the stock undervalued?
I have compeleted the valuation of 2U using my discounted cash flow model. I have plugged in the financials from the earning report for the full year of 2021.
For my revenue growth estimates, I have been conservative with 15% predicted for the next five years (2U grew revenues at 20% previously). For the margins I have predicted an increase of 23% over a long seven-year period.
Calculating these numbers, I get a fair valuation estimate of $12 per share, this means the stock is 30% undervalued at the $9 price per share.
Final thoughts
2U is a leading company in the online education market in the U.S. This is a growing industry which was only accelerated by the pandemic.
The companies recent acquisition of edX and marketing strategy of a “free to degree” is a great strategy.
The risk for the company and all growth stocks is the macro trends of high inflation and rising interest rates which are negatively affecting the valuation of growth stocks. Therefore, I expect all growth stocks to stay at a low level until inflation begins to subside. Read more about my inflation analysis in my article on the subject.
