For profit education companies have been under pressure lately as declining student enrollments across the country stand to impact the entire sector.
As if this was not enough, the government is following up with its pending reforms, aimed at tackling high student loan balances, with increased vigor. Many contend that formal education is losing its appeal and is an indication the sector will underperform for a long time.
As a result, stocks of for-profit education companies including Grand Canyon Education Inc (NASDAQ:LOPE), Corinthian Colleges Inc (NASDAQ:COCO), and Strayer Education Inc (NASDAQ:STRA) have been getting thumbs down for investors. From mid February through mid March, Corinthian Colleges and Strayer are both down over 10%.
However, a contradicting version of the story is presented by the latest employment data which indicate that a steady recovery is underway in the job market. This improvement should go a long way in restoring the long-held faith in formal education. The sector is also affected by a bill that proposes to increase the Education Department’s scrutiny in these companies. These fears appear to be overblown as the current government has no history of being so reactionary.
California based Corinthian Colleges Inc (NASDAQ:COCO) lost nearly 15% in the last month, largely in response to weak financial results. For the quarter ended December, the company saw a 4.5% increase in revenue, but higher costs and extraordinary charges pushed it into the red.
It is worth noting, however, that its core operations are still growing and the quarterly loss of $68,000 was largely caused by reversal of tax benefits on discontinued operations. The stock is currently available near the lower end of its 52 week trading range of $1.74 -$ 4.60.
Grand Canyon Education Inc (NASDAQ:LOPE) has lost more than 11% in the last couple of weeks after hitting a new 52-week high. Currently trading at $24, the stock is available at a price earnings ratio of 15.75 which further reduces to 12.4 on a forward basis.
The company is one of the stronger players in the sector. This is visible in its latest quarterly financial performance, which gave a 24.7% boost to the top line while net income jumped to $21 million, up from $15.3 million in the same period last year. This financial performance was clearly ahead of the street’s expectations and the company topped it with an upbeat first quarter 2013 guidance. The latest pullback appears to be more of a sentimental move in sympathy with wider market than anything based on its performance.