New Information Raises Red Flags for Apollo 4 comments
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Apollo Group (APOL) has remained one of the few high-flying stocks in the market these days. There are a few obvious reasons, including:
The firm has continued to execute very well. In their most recent quarterly report in January, they posted solid results. Revenue grew 24% and operating margins rose to a a very rich 31.6%.
There is a belief that in a down economy characterized by job losses, online education companies like Apollo are in a very strong position and will be able to thrive while other parts of the economy swoon. More people in transition means more opportunity for incremental education to help them get into a new job.
Most analysts and investors love the management team at Apollo and feel that they are one of the best in the business and perhaps near the top for public companies in general.
About a month ago, the notorious short seller Citron Research began to pick on Apollo Group with some comments suggesting that their business practices were questionable and might not be sustained. We’d say that the concerns raised by Citron were largely dismissed by analysts and investors. Although the shares have retreated a little bit, forward estimates and valuation all suppose that the company will be one of the few (the only?) to be able to grow right through the current economic environment.
Perhaps more concerning is a rash of new documents and information released by Citron Tuesday that point to more than a few eyebrow raising practices at the company. Since Apollo is dependent on government education loans, their practices are likely to fall under greater scrutiny than other companies.
One can’t help but think in reading through these documents that the "enrollment counselors" at Apollo are a lot like the "mortgage officers" of the current banking crisis. Paying people to "get people into the program" when that program is funded with government money is one of those things that gets a company or even a whole industry into trouble.
The showdown seems to be on the way as analysts have recently raised forward estimates for APOL and have price targets in the vicinity of $95/share. In fact, most models we have seen are calling for an acceleration of top-line growth in 2009 and 2010.
According to S&P/CapitalIQ, there are only 11M shares sold short out of about 159M. The stock has come in a bit with the market and trades at a TEV/REV of 3.2x and about 23x earnings. Insiders have been consistent sellers but continue to own large positions in the company.
We haven’t done any of the research here but we have reviewed what is out there on both sides of the argument. Given the valuation and forward estimates for this company, we think there is some cause for alarm.
Disclosure: Research 2.0 has a small short position in the shares of APOL at the time of this writing.
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The student loan scam is not a solid business model. Like all scams, they eventually implode.
How people can short such an outstanding historical play that blew out last quarter expectations and is clearly gaining steam for another fantastic quarter is beyond me? When the CS (Credit Suisse) people can't wait to jump the fence cause the grass is greener over on the other side of the septic fence to garner equity positions don't you think they realize that Apollo's star is indeed very bright?
This author should probably stop being a wall flower and ask this belle of the ball for a dance and he might see this beauty for who she really is which is a solid play in a down market. Good luck being short and listening to rumor mongering Citron and shallow mean spirited psychotic teenage girls.
Go long and search for truth dumbass. Go short and see an organization setting themselves up for failure under the government's administration.
This is a 40.00 stock in 2 months.
On Mar 05 01:07 PM User 370365 wrote:
> Citron is like the mean high school girl who thinks shes all that
> and speaks badly of everyone in a attempt to hide her shortcomings
> and raise her popularity. Just like in the typical plot teen movies
> this "beeitch" is revealed in her fully glory as a fraud in front
> of the whole school population (i.e. The Market) and forced to climb
> back under the rock she came out from under much to the delight of
> the plain looking protagonist jane who now becomes the Prom Queen
> based upon her inner beauty and honorable and I emphasize honorable
> intentions (i.e. Apollo).
>
> How people can short such an outstanding historical play that blew
> out last quarter expectations and is clearly gaining steam for another
> fantastic quarter is beyond me? When the CS (Credit Suisse) people
> can't wait to jump the fence cause the grass is greener over on the
> other side of the septic fence to garner equity positions don't you
> think they realize that Apollo's star is indeed very bright?
>
> This author should probably stop being a wall flower and ask this
> belle of the ball for a dance and he might see this beauty for who
> she really is which is a solid play in a down market. Good luck being
> short and listening to rumor mongering Citron and shallow mean spirited
> psychotic teenage girls.
Since we posted this we've discovered a number of very smart sources on this name that provide more insight on both sides of the story.
Apollo remains a name to watch closely and one that provides some good opportunity for swing trades at these levels.