About: 3P Learning is an online education provider with programs in mathematics, spelling, literacy, reading and science that are aligned with over a dozen different curricula across the world.

Why it’s in the portfolio: 3PL provides the portfolio with exposure to a small cap, new-age business. As software slowly replaces textbooks and blackboards, 3PL has the potential to grow fast, including by further overseas expansion. It has suffered from negative price action in 2016, due to disappointing sales growth and a change in leadership, and has since been trading at an attractive price relative to its history. While the Australian business appears mature, the overseas expansion and the acquisition of Learnosity (online assessment and testing software) could provide significant growth opportunities that don’t seem to be priced in current valuations.

Fundamentals: 3PL currently trades on a price-to-earnings ratio of around 19x forward earnings, and a price-to-book ratio of 5x. 3PL doesn’t currently distribute dividends. At 12%, 3PL’s level of debt relative to assets is considered to be low.

What could go wrong? While 3PL has a good foothold in Australian schools, and to a lesser extent in New Zealand, UK and Canada, the US represents the biggest opportunity for growth and much of the investment thesis rests on 3PL’s ability to realise this potential. However, unlike in Australia, the US online education is very competitive and gaining a sizeable market share may prove challenging. Furthermore, 3PL’s dominant position in the Australian market could get challenged by new entrants.