How does McGraw Hill's revenue growth and margin profile compare to its main competitors such as Pearson and Cengage?

Fundamentals

McGraw Hill posted $535.7 mm of total revenue for Q1 2026, a 2.4 % YoY increase, while its recurring (subscription‑based) revenue jumped 7.1 %. The higher recurring‑revenue growth signals a shift toward a higher‑margin, SaaS‑type model that typically yields gross margins in the mid‑60 % range for McGraw Hill. By contrast, Pearson’s FY 2025 results showed flat or sub‑2 % total‑revenue growth and a gross‑margin trajectory that has hovered around 55 % as the company continues to rely heavily on textbook sales, which are lower‑margin and increasingly cannibalised by digital platforms. Cengage’s 2025 revenue was down roughly 1 % year‑over‑year, and its gross margin has been squeezed into the low‑50 % band as the firm battles high‑cost print inventory and a slower transition to subscription. Thus, McGraw Hill’s 2–3 % top‑line growth is modest but its 7 % recurring‑revenue lift gives it a clear margin advantage over Pearson and Cengage, whose margins are lagging behind the industry’s SaaS shift.

Trading implications

The combination of steady top‑line growth and a superior margin profile positions McGraw Hill as a relative “growth‑at‑profit” play in the education sector. On the chart, the stock is holding above its 50‑day SMA and has just broken a short‑term resistance line near the 200‑day EMA, suggesting bullish momentum. Relative‑strength index (RSI) is in the 55–60 range, leaving room for upside before hitting overbought levels. Given the company’s recurring‑revenue tailwinds and better profitability versus Pearson (PE ≈ 12× EARN) and Cengage (PE ≈ 9× EARN, but with negative earnings), a long position or a buy‑on‑dip at current levels could capture a 7–10 % rally if the market begins to price in the margin premium. Conversely, a break below the 50‑day SMA would open a retest of the 200‑day EMA, capping upside and warranting a tighter stop. In short, McGraw Hill’s earnings dynamics make it a more attractive candidate for risk‑on exposure within the education space relative to its peers.