International Student Caps Are Reshaping Education Stocks: Which Ones Will Survive?

Government intervention has triggered most of the changes in the education sector especially in countries that are regarded as top educational hubs like Australia by imposing a cap on the number of international students. These regulations which are aimed at geared towards reducing the cost of living and controlling the housing crisis have other effects on other sectors especially on the education stocks. This piece looks at the effects of such caps and argues which firms are most at risk and which firms are in the strongest position in the market at the moment.

Why Are International Student Caps Impacting Education Stocks Differently?

The effect of international student caps on education stock varies but majorly depends on the amount of overseas enrollments they make use of. Many firms, particularly in the higher education and vocational training spaces, rely on business models that are constructed around the influx of foreign students. Take Australia for example; more than 717,500 students were studying in Australia by March 2024, with the number of students dipping and recovering easily in the last few years because of visa policies and restrictions associated with COVID-19.

Some firms, for example, tend to be more at risk because such students allow a stronger financial performance. In contrast, some firms have less international exposure so they can adapt better to such changes. For instance, firms whose students come from a wider geographical area or who have other sources of revenue may be in a better position.

Which Education Stocks Are Most at Risk Due to Reduced International Enrollments?

Education companies that rely heavily on international enrollments, especially in countries like China and India, are relatively stable. For instance NextEd (ASX: NXD), an English language and vocational education provider. NextEd also tried to branch into aged care – hospitality, among other things. However, this has led to an over 80% decline in shares over the past year, mainly due to a fall in visas granted and doubts over the firm’s ability to bounce back.

Also exposed is AuMake (ASX: AUK), a Sydney-based retail company focused on supplying mainly Chinese students and travelers. The company has tried to diversify its products and services but still relies more on international students coming back to its operations, especially from China. Any further tightening of visa restrictions would be dire for these businesses as they may not be able to get enough local students to fill in for the loss of international students.

How Are Some Education Companies Managing to Benefit Amid the Restrictions?

Interestingly, not all education companies are struggling due to the international student caps. A few have adapted and are winning under the new circumstances. Better-performing organizations are those that diversify their portfolios and/or penetrate new vertical markets.

By way of example, ReadyTech (ASX: RDY), the SaaS provider for education, workforce solutions, and government verticals, has done well amidst pressures in the market by investing in high-growth skill-based and digital content development learning solutions​.

ReadyTech has felt less of the pinch of the student caps because its model isn’t based only on physical enrollments. Rather, the cloud-based education solutions of the company are on the rise owing to the heightened appetite for education online.

What Are the Key Indicators of Resilience in Education Stocks Today?

Resilience in education stocks amid changing international student policies can be identified through several key factors:

• Diversification of Revenue Streams: Companies that are not overly reliant on international students for revenue, or those that have diversified into sectors such as vocational training and digital learning, are more likely to withstand the impact of student caps.
• Cost Management: Education providers that have implemented cost-control measures and reduced their dependency on physical infrastructure may be better positioned to navigate these turbulent times.
• Adaptation to Market Needs: The ability to pivot towards in-demand sectors such as healthcare, technology, and aged care education is crucial. These sectors are less dependent on international enrollments and align with domestic labor market needs.
• Government Support: Some companies may also benefit from government incentives for vocational training or reskilling programs aimed at addressing labor shortages in critical industries.

How Should Investors Approach Education Stocks Amid Changing International Student Policies?

For investors, navigating the education sector amid shifting international student policies requires a careful, balanced approach. Here are some practical steps to consider:

• Focus on Diversification: Investors should prioritize companies that have diversified their offerings beyond international students, especially those that are expanding into digital education or other high-demand sectors like healthcare or technology.
• Evaluate Financial Health: Companies with strong balance sheets and the ability to manage costs during periods of reduced enrollment are more likely to survive the current downturn. Look for companies with low debt levels and a track record of managing expenses effectively.
• Watch Government Policies: As governments adjust policies in response to economic conditions, education companies that can benefit from favorable policies, such as those promoting vocational education and training, will be in a stronger position.
• Look for Growth Opportunities: Despite the challenges, the education sector still offers growth opportunities. Companies like ReadyTech and Janison Education are examples of businesses that have leveraged digital transformation to maintain growth.​

Overall, international student caps are changing the world of education stocks, some companies more so than others. Diversified businesses, with strong financials, capable of adjusting to the changing market environment are the businesses, which the investors should continue to focus on. Having identified these key indicators of resilience, investors can confidently traverse the sector using fiercely held politics as little more than backdrop noise.

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