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

However, it’s important to remember that these valuations are just a snapshot in time. These stocks are only cheap when compared to trailing earnings, the key word being ‘trailing.’ Future earnings are likely to keep falling, which is why their stock prices have collapsed over the past few years.

This is where the term ‘value trap’ takes its meaning: stocks that seem cheap on the surface, but will look much more expensive once the earnings collapses are taken into account.

Many investors are willing to wait for distressed companies to turn their businesses around in exchange for buying in at low prices. However, shareholders aren’t being paid to wait for this. None of these stocks pays a dividend. Strayer Education Inc (NASDAQ:STRA) was the last to do so, having suspended its $4.00 per share annual payout in 2012.

These companies will focus on cost-cutting to try to eke out profits going forward. For example, in the wake of its quarterly results, Apollo Investment Corp. (NASDAQ:AINV) announced it is targeting $300 million in cost cuts in fiscal 2013.

However, cost-cutting can only go so far. Continuing drops in student enrollments will virtually ensure lower revenue and profits in future quarters.

Investors don’t need to gamble on stocks with such deteriorating fundamentals. There are plenty of highly-profitable stocks out there that reward their shareholders handsomely with rising earnings and dividends. Plainly stated, the for-profit industry is in a structural decline, and investors would be wise to send all for-profit education stocks to detention.

The article This Industry Is in Serious Trouble originally appeared on Fool.com and is written by Robert Ciura.

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