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According to Bloomberg, the US service industry grew faster in May, in part thanks to new economic data for the month of April. The Institute for Supply Management's non-manufacturing index reached 53.7, up from 53.1. A score above 50 indicates growth, and non-manufacturing businesses in the US make up nearly 90% of the economy. Service companies also added more jobs than those in other industries, with their payrolls rising by 138,000.

We decided to take a closer look at the service sector, and find stocks in the small cap range that might disproportionately benefit from this trend. After all, small caps tend to be less followed and subject to market inefficiencies. We began by screening for those companies with a market capitalization between $300M and $2B that are rallying. Specifically we ran a screen for stocks that are rallying above their 20-day, 50-day, and 200-day moving averages (NYSE:MA), indicating that these stocks have strong upward momentum.

Noticing that education and training service providers came up high on our list, we decided to limit our search to companies in that field, and searched for those that have Returns on Assets (ROA) and Returns on Investments (NYSE:ROI) higher than their industry averages.

We were left with three companies on our list.

The List

For an interactive version of this chart, click on the image below. Average analyst ratings sourced from Zacks Investment Research.

Do you see growth potential among for-profit educational service providers? Use the list below as a starting point for your own analysis.

1. Bridgepoint Education, Inc. (NYSE:BPI): Provides postsecondary education services.

  • Market cap at $679.62M, most recent closing price at $12.56
  • 20 day MA: 4.40%
  • 50 day MA: 14.38%
  • 200 day MA: 20.67%
  • Performance this quarter: 29.75%
  • TTM Return on Assets at 15.83% vs. an industry average at 6.55%.
  • TTM Return on Investments at 24.41% vs. an industry average at 10.96%.

More about momentum: The stock's average daily alpha vs. the S&P500 index stands at 0.83% (measured close to close, over the last month). During this period, the longest winning streak lasted 5 days (i.e. the stock's daily returns outperformed the S&P 500 for 5 consecutive days). The longest losing streak lasted 2 days (i.e. a win streak / losing streak ratio of 2.5).

BPI has recorded a solid performance over the last month, returning 15.97% since 5/6/13. This performance has eclipsed the likes of Apollo Group Inc. (NASDAQ:APOL) and DeVry, Inc. (NYSE:DV), but have lagged Corinthian Colleges Inc. (NASDAQ:COCO), which returned 33.15% during the same holding period.

StreetAuthority recently examined the for-profit education industry, and BPI impressed on some key metrics. The company gained 22% over the month ending 5/29/2013, beat first quarter forecasts by 4.9% and also has a high level of net cash relative to market value, at 77%. However the company has a 2014 P/E ratio higher than its industry peers.

2. Capella Education Co. (NASDAQ:CPLA): Provides online postsecondary education services in the United States.

  • Market cap at $543.8M, most recent closing price at $43.89
  • 20 day MA: 3.28%
  • 50 day MA: 21.02%
  • 200 day MA: 35.11%
  • Performance this quarter: 39.47%
  • TTM Return on Assets at 15.43% vs. an industry average at 6.55%.
  • TTM Return on Investments at 20.36% vs. an industry average at 10.96%.

More about momentum: The stock's average daily alpha vs. the S&P500 index stands at 0.91% (measured close to close, over the last month). During this period, the longest winning streak lasted 5 days (i.e. the stock's daily returns outperformed the S&P 500 for 5 consecutive days). The longest losing streak lasted 2 days (i.e. a win streak / losing streak ratio of 2.5).

CPLA has recorded great gains over the last month, when compared to its closest competitors. The stock returned 21.58% since 5/6/13, better than Strayer Education Inc. (NASDAQ:STRA) and Apollo Group Inc. , which returned 18.20% and 15.32% during the same holding period.

CPLA received approval for two new programs from the Higher Learning Commission: Bachelor of Science in Business and Master of Business Administration, both part of the company's FlexPath programs. The lower-cost, shorter-duration courses still require approval from the US Department of Education before they can be made available to students.

3. Grand Canyon Education, Inc. (NASDAQ:LOPE): Provides postsecondary education services in the United States.

  • Market cap at $1.43B, most recent closing price at $31.50
  • 20 day MA: 0.40%
  • 50 day MA: 14.76%
  • 200 day MA: 29.65%
  • Performance this quarter: 32.63%
  • TTM Return on Assets at 16.71% vs. an industry average at 6.55%.
  • TTM Return on Investments at 25.86% vs. an industry average at 10.96%.

More about momentum: The stock's average daily alpha vs. the S&P500 index stands at 1.14% (measured close to close, over the last month). During this period, the longest winning streak lasted 5 days (i.e. the stock's daily returns outperformed the S&P 500 for 5 consecutive days). The longest losing streak lasted 2 days (i.e. a win streak / losing streak ratio of 2.5).

LOPE has recorded strong gains over the last month, when compared to industry peers. The stock returned 21.25% since 5/6/13, better than K12, Inc. (NYSE:LRN), which returned 9.12%, but fell behind ITT Educational Services Inc. (NYSE:ESI), which returned 41.42% during the same holding period.

LOPE is a for-profit educator with a campus in Phoenix, AZ, serving roughly 6,500 students, and an online program with an additional 46,000 students. The college charges significantly less than most private universities do, allowing it to outperform other institutions with ballooning tuitions and administrative costs. As reported by Investors.com, the stock has jumped 25% in two weeks, and is up 34% for the year.

*All accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: Service Stocks Are Driving The U.S. Economy - Here Are 3 Rallying Education Providers