Down 33%, here’s the FTSE 100 horror show I’m avoiding on Friday the 13th!
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The past year has been a living nightmare FTSE 100 stock Pearson (LSE: PSON). The publishing giant plunged 33% in value amid market pressure, heavy contract losses, and concerns about artificial intelligence (AI) eroding its business.
But can Pearson’s share price hold firm in 2026? If City’s forecasts are accurate it is possible – 11 analysts have hit a 12-month average price of £12.07 on the company. That represents a 34% increase from current prices.
I’m not convinced, though. Here I will explain why I avoid Pearson shares like the plague.
There is no value stock
Market panics often result in some high-quality stocks being unreasonably oversold. Picking these up can have huge benefits for investors, as they can (in theory) bring huge profits when investors wake up and re-rate the stock.
The problem is, Pearson doesn’t fit into this category. For one thing, it doesn’t look particularly cheap. At 904.2p per share, the publisher trades on a forward price ratio (P/E) of 13.8 times.
That’s less than the 10-year average of about 16 times, of course. But it doesn’t detract from the ‘bargain floor’ area, in my opinion. And it doesn’t leave a significant range for price returns, either.
In fact, given the huge challenges it faces, I think the company can – or should – trade very cheaply.
The threat of AI
Pearson has done many things since its creation in 1844, including oil drilling and porcelain production. But in the 1990s it focused exclusively on the education sector, becoming one of the world’s largest suppliers of textbooks and assessments for schools, colleges and universities.
This poses a major problem these days, however, as it leaves the company vulnerable to being taken down by AI. Accuracy issues continue to plague this new technology, but rapid advances pose a major threat. They also provide skills for standard textbooks and the like, such as the ability to create interactive experiences for students.
Pearson is not sitting on his hands, and is developing his own AI tools to make this an opportunity. It’s seeing some success here, with sales of its Virtual Learning unit up 20% in Q4. Digital enhancements and AI are widely used in this part of the business.
But on balance, I think AI poses more risk in the long term than opportunity. Last year, Pearson’s US rival Chegg cut 45% of its workforce due to what it described as “the new realities of AI.”
High risk, high reward?
Unfortunately for the FTSE company, the rapid development and adoption of AI is not the only threat to future earnings. Pearson operates in a highly competitive field, and last year shares fell after losing a testing contract for American students in New Jersey. Similar obstacles are an ever-present threat.
Pressures on education budgets across its markets represent another major risk. As public finances are stretched and costs rise, governments are likely to keep their spending on learning materials low.
The initial success of Pearson’s AI may tempt some investors after that recent share price weakness. But I will not add FTSE company to my portfolio right now.
