Analyst Note| Michael Field, CFA |
Narrow-moat Pearson's shareholders have enjoyed a rather pleasant week or so, with the share price rallying as much as 30%. Last week's fourth-quarter results displayed a resilient performance through the pandemic, with organic revenue falling just 10% from full-year 2020. This was despite massive disruption throughout the business and a quickening of trends such as the migration away from higher education textbooks, once a cash cow for the business. Following that, we had the knock-on effect from the Reddit/Game Stop debacle. With short sellers of high-profile stocks now on edge, Pearson, which had a short interest of 15% of the free float, was an obvious candidate for a swift, pre-emptive exit. Although the share price currently stands above our GBX 780 fair value estimate, we are not convinced that the short sellers are gone for good.