There Is A 20% Upside For Shares Of This Education Technology Company

Goldman Sachs predicts PowerSchool's share price to rise as it expands internationally and cross-sells its large product suite.

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The stock has been upgraded to buy by analyst Gabriela Borges from neutral. According to her price target of $24, the stock should rise 20% from its Monday closing price.

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She said in a note emailed to clients on Tuesday that PowerSchool's platform has a unique breadth that solidifies its leadership position.

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Tuesday's trading saw shares rise nearly 3%. The stock has fallen 10.3% this year despite the rally.

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With more than 50 million students enrolled in kindergarten through 12th grade, 80% of U.S. and Canadian students use the company's offerings, which include state reporting, talent acquisition, registration, grading, testing, and analytics. Ninety of the top 100 districts in the United States are among our clients.

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The onset of the pandemic shuttered in-person instruction throughout the country, forcing schools, districts, and the government to improve online learning. In response, billions of dollars have been funneled into closing the learning gap created by the disruption.

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Borges said the company had only penetrated 30% to 40% of the market with many of its core offerings. Therefore, the market offers room for growth for the company.

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Given the company's large suite, Borges said that cross-selling drives most of its growth. It is still possible for PowerSchool to win over more customers since the average customer uses two of the 19 products available. Additionally, clients can purchase more of the suite with innovations in data analysis in the first half of the year, she said.

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School districts pushed to improve online learning during the pandemic, which resulted in net revenue retention of 108%. Due to the acquisition of Naviance and the strong bookings for 2020, the company's performance moderated in the second half of 2021.

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PowerSchool's net revenue retention in the second half of 2022 was 109%. As long as cross-selling products continue to grow, Borges believes the company can continue to grow at about that rate.

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A pivotal years for the company to expand internationally will be 2023 and 2024, according to Borges. It could consolidate vendors in the international educational technology market, which is currently fragmented, she said. International expansion can also be driven by partnerships and acquisitions, Borges explained.

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A total of $30 billion is estimated to be the addressable market internationally. Over the next three to five years, PowerSchool plans to make up between $80 million and $100 million in international revenue. However, Borges pointed out that recent success in international markets could suggest the company will meet its goals.

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