Short Idea: K12 Inc.

In this week’s Barron’s cover story “Shorts Story” they report on a small North Carolina-based research firm called Short Alert who have been recommending stocks to short since 1998.

One of their five recommendations in 2009 is a company called K12 Inc (LRN); LRN runs a “virtual public school” which offers online education programs to kindergarten through to 12th grade. The short base (as measured by the percent of shares outstanding on loan) in LRN has increased over 30.25% in the last month and is currently at 24.88%.

LRN has a very high utilization (which measures the supply and demand in the securities lending market) at 83.28%, which could indicate a higher risk of a price squeeze.

Download our full Data Explorers report on LRN by clicking here.

Comments

[William Kab...:]

I wouldn't risk shorting at this time. While LRN may decline with the general market pull back, the company itself is sound and in the sweetspot of education. Internet education, K thru 12, is on a huge uptrend. Ed budgets for virtual learning are being spared since they are a cost saver for school districts. Even the teachers unions aren't 100% against them as K12 uses unionized teachers in their instruction-just not as many per student load. Yes, the P/E is high, but so is their earnings growth as they have only reached profitability a few years ago. To use an overused term, their product is highly scaleable and the P/E will shrink as earnings grow. The company is worth holding long term and could see a huge pop, as it did about 2 weeks ago with a $7 move, if negative betters try to move to the door en masse.

Jul 10 09:08 AM

[bigstan26:]

gotta agree...i would rather sell puts at todays price...hard to find double digit growth nowdays in a business...especially without meaningful competition

Jul 11 12:02 AM