With Apollo Group (APOL) trading just off its 52 week highs after a run-up, I decided to take a closer look into the company to see if it is still an attractive opportunity. Here are six points I considered at while researching Apollo:
Valuation: Apollo's trailing 5 year valuation metrics suggest that the company is undervalued at these levels. Apollo's current P/S ratio is 1.6 and it has averaged 2.4 over the past 5 years with a high of 4.5 and a low of 1.0. Apollo's current P/B ratio is 5.6 and it has averaged 8.4 over the past 5 years with a high of 16.0 and a low of 3.4. Apollo's current P/E ratio is 16.0 and it has averaged 18.2 over the past 5 years with a high of 30.8 and a low of 9.2.
Price Target: The consensus price target for the analysts who follow Apollo is $58. That is upside of less than 2% and suggests that the stock is overvalued at these levels as analysts are generally bullish on stocks.
Forward Valuation: Apollo is currently trading at $57 a share and analysts expect the company to report earnings of $3.41 per this fiscal year ending August for a forward P/E of 17. Revenues are expected to decline 9.1%. Taking a look at what competitors trade at will provide a better idea of APOL's relative value. Corinthian Colleges (COCO) is trading at a forward P/E of 12 with revenues expected to decline 10.7%. DeVry (DV) is trading at a forward P/E of 11 with revenues expected to decline 2.4%. Education Management (EDMC) is trading at a forward P/E of 19 with revenues expected to decline 2.4%. Based on its competitors, Apollo is overvalued as companies with similar revenue declines trading for much cheaper multiples.
Earnings Estimates: Apollo has beat earnings estimates the past 4 quarters with beats ranging from 8 to 14 cents. Beats closer to 14 cents will help propel the stock higher. Analysts seem to be getting better at forecasting Apollo's results as the last 3 quarters the beat was more consistent, coming in between 8 to 12 cents.
Recent News: The company recently announced that Charles B. "Chas" Edelstein will retire as co-Chief Executive Officer and director of the company on August 26, 2012. Following his retirement as co-CEO, Mr. Edelstein will serve the company in a part-time advisory capacity through February 2013. Gregory W. Cappelli will assume all duties and responsibilities as Chief Executive Officer of Apollo Group, upon Mr. Edelstein's retirement later this year.
Price Action: The stock had a strong rallied during June and July of last year, trading over $54 a share but fell apart in late summer and traded all the way down to below $38 a share in October. Since then, the stock has been strong, rising over 50% to its current level of $57. The stock is above both its 50 day moving average, which sits at $50.04, and its 200 day moving average, which sits at $45.70. The stock seems extended right now as it is way above its 50 day moving average and may be due for a pull back. Support on the down side includes $54 a share followed by $50 a share.
Conclusion: The valuations on Apollo are mixed, as it looks expensive on a forward P/E basis and analyst target, but is cheap on a trailing valuation basis. I think it's a better bet here to stay away from the stock as there is no real consensus among the valuations and the for-profit education industry continues to be a hot topic in legislative and regulatory circles.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.