Tutoring gets good marks from investors

/ Source: CNBC

There is a saying that goes: "an education is the best investment money can buy."  And it turns out there's money to be made in helping students make the grade.

On a recent afternoon in New York city, school was out but class was in session at a Sylvan Learning Center here, where students were busy working through an algebra problem. Attendance is climbing at tutoring centers like this one, as demand grows for services that hone the academic skills of students ranging from kindergartners to high school seniors.

“The K-12 tutoring segment over the last five years has been a pretty good grower,” said David Small, an analyst who follows the stock at Goldman Sachs, which has an investment banking relationship with the firm. “It’s grown about 15 percent.”

And that growth is not slowing down. Analysts say the $4.6 billion market for  K through 12 tutoring should continue to grow at a 15 percent clip for the next five to ten years.

What's driving growth in this industry? Simple economics says Chris Hoehn-Saric, CEO of Educate, Inc., which owns Sylvan Learning Center.

“As we've gone forward our economy has moved from a manufacturing to a services economy,” he said. “And with that the demand for high quality education means the best opportunities are for those that are educated.”

According to the department of education, men with college degrees earn 38 percent more than those with just high school degrees. The disparity is greater among women; female college graduates earning 49 percent more.

That’s why concerned parents like Lisa Halasz are willing to pay to for Sylvan's services to fill gaps in their children's education.

“It's thousands of dollars, its a significant thing,” she said. “But it would be less than if you had a private tutor.”

And it’s not only middle to upper middle class parents who can afford these services. The No Child Left Behind Act signed into law two years ago by President Bush provides money for tutoring to parents whose children attend failing schools.

That government funding is one reason analysts are bullish long-term for Educate, Inc., the only public provider of these services.

“We would expect this pool of money to grow rather than stay flat,” said Small.

Educate CEO Hoehn-Saric says he wants the company to become a "Starbucks of study."

“We want to be anywhere, whatever time they want and whatever mode they want to learn,” he said.

Hoehn-Saric says this strategy should help the firm meets its target of annual earnings growth of twenty five percent for the next five years.

But do its services make the grade? Yes, says Halasz, whose daughter now gets A's in math.

“I don't know what they're doing but they're doing the right thing," she said.