Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Bridgepoint Education Inc (BPI), Strayer Education Inc (STRA), Apollo Investment Corp. (AINV): This Industry Is in Serious Trouble

Page 1 of 2

If you’re an investor who owns stocks, you know that risk management is a key component of building a portfolio. As stockholders, we are residual claimants, meaning owners of a company aren’t entitled to anything. Whereas bonds are a contractual relationship, and bondholders are the first on the capital structure to receive payment, stockholders are often left holding the bag if a company goes bust.

Therefore, it’s critical to tread carefully among the minefield of the thousands of publicly traded stocks out there. Even companies that look cheap on the surface can be traps, and as equity investors we need to understand which industries are in structural decline. One such industry that I believe investors should avoid at all costs is the for-profit education industry.

Failing grades across the board

On June 26, the Dow Jones Industrial Average rose 150 points and the S&P climbed nearly 1 percent. Many of the for-profit education stocks, however, were deeply in the red—a disturbing signal during such an impressive, broad market rally.

Bridgepoint Education Inc (NYSE:BPI)

For-profit education stocks such as Bridgepoint Education Inc (NYSE:BPI) and Strayer Education Inc (NASDAQ:STRA) dropped 0.5% and 3.3%, respectively. But this was nothing compared to the 10% drop in Apollo Investment Corp. (NASDAQ:AINV) after the owner of the University of Phoenix reported its third-quarter earnings results.

Apollo said its third-quarter profit fell a whopping 40% from the prior year on a 16% drop in revenue year over year.

Moreover, the company’s current year outlook came in below Wall Street expectations. Apollo Investment Corp. (NASDAQ:AINV) was expecting revenue to come in between $3.65 billion to $3.7 billion, falling short of analyst projections.

The big picture: an industry in decline

Apollo’s results are just one example of the bigger crisis affecting for-profit education, which is collapsing enrollments. Apollo Investment Corp. (NASDAQ:AINV)’s University of Phoenix saw total enrollment fall 17%, and new student sign-ups fell a massive 25%.

This stunning drop in enrollments is being felt throughout the entire industry.

In May, Strayer Education Inc (NASDAQ:STRA) released first-quarter results, which saw revenue and diluted earnings per share fall 8% and 24%, respectively. Furthermore, Strayer Education Inc (NASDAQ:STRA)’s total enrollment dropped 9% and its new student enrollments decreased 14%.

Ditto for Bridgepoint Education Inc (NYSE:BPI): the company’s own first-quarter revenue declined 11% year-over-year, and diluted earnings per share collapsed 27% from the first quarter of 2012.

Again, enrollments were the main cause of the company’s deteriorating financial performance. Total student enrollment at Bridepoint’s academic institutions dropped 17% from the first quarter last year.

Cheap only on the surface

Proponents of investing in the for-profit education sector likely point to the cheap valuations on these stocks. It’s true that many of them trade for low multiples of trailing earnings and cash flow. For example, Strayer Education Inc (NASDAQ:STRA) trades at 9 times trailing earnings. Apollo Investment Corp. (NASDAQ:AINV) and Bridgepoint Education Inc (NYSE:BPI), meanwhile, change hands for just 5 times trailing EPS.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...
X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!