Apollo Group, Much Maligned (APOL)

| About: Apollo Education (APOL)

The Apollo Group (APOL) must feel that it has hit the perfect storm. The company lowered its second quarter earnings forecast. Enrollment was shy of forecasts for 2005. And the company CEO, Todd Nelson, resigned in early January.

On top of all this, the New York Times ran an article about Apollo in last Sunday's edition.

So, the stock is near its 52-week low, and it does not belong there.

Let's look at the facts. If there was something material involving the CEO's resignation, we would know it by now. A similar business, Education Management (NASD:EDMC) was just bought by Goldman Sachs and Providence Equity Partners. According to analyst Kristan Rowland at Morningstar, the price was 17x trailing one-year EBIT. If you apply that to Apollo, the stock should be over $70, not below $50 where it is now.

Another important issue is who replaced Nelson. Brian Mueller, the new president, has been at Apollo for years and has been running the successful University of Phoenix flagship division.

Apollo is a company that has more than doubled its annual revenues since 2002. Operating income has nearly tripled during the same period. Trailing twelve month cash from operations is nearly $650 million.

The online education market is going to continue growing. Post high school education is also going to continue to grow, rapidly, as the workforce continues to retrain itself for new and better ecomomic opportunities. As Apollo points out, 80% of people getting a higher education degree work full-time now. And, the University of Phoenix brand is widely known and highly regarded among people seeking training for a career improvement.

Apollo is on its way to $3 billion in annual revenue, and I can see it at that run rate at the end of 2006. The growth is there. A couple of stumbles. Yes. But, nothing more.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also president of Switchboard when it was the 10th most visited website in the world, according to MediaMetrix. He has also been chief executive of On2 Technologies, Inc. He does not own securities in this company.