Any time negative news is announced in the after-hours session the stocks in focus tend to take quite the tumble. In this article I wanted to focus on two companies which have fallen by as much 10% during Monday's after-hours trading session. The first of these companies is the direct target of a U.S. Department of Justice investigation and the second of these companies announced that earnings would fall well short of what Wall Street was expecting.
Bridgeport Education (NYSE:BPI) - It was announced on Monday that the U.S. Department of Justice would be launching an investigation into the compensation practices of the company directly relating to its admissions staff and sales force. According to a recent AP article,
The Justice Department is investigating compensation paid to Bridgeport Education Inc.'s admissions staff, the for-profit education company disclosed in a regulatory filing Monday. The company did not disclose all the details of the investigation, but said the DOJ is seeking further information about staff pay that was part of an earlier review and audit by the U.S. Department of Education.
Investors should keep in mind, that for-profit education services companies such BPI use a very aggressive strategy when contacting potential students via the internet leads that they receive. If the DOJ finds that the company has acted in such a way that they deem unacceptable, a plethora of outcomes could be administered, all of which won't bode very well for shareholders. The worst case scenario, though hypothetical at this point, could result in BPI closing its doors and going belly up. Such a scenario is something short-sellers really need to keep in the back of their minds moving forward.
Bankrate, Inc. (NYSE:RATE) - Bankrate, Inc. came out on Monday and announced that earnings estimates for the upcoming quarter would miss estimates by as much as 45%. According to an article published by Forbes.com,
for the quarter, the company now sees revenue of $115.5 million to $117.5 million, up 3% from a year ago at the midpoint of the range. EPS is expected to be 2-4 cents a share on a GAAP basis, or 11-13 cents on an adjusted basis. Street consensus estimates had been for $132.7 million in revenue and 20 cents a share in profits on an adjusted basis.
If we examine the two most recent quarterly results for RATE, I don't think really comes as a surprise to many-short sellers. During the March 2012 quarter, analysts were expecting Bankrate, Inc. to earn $0.19/share, however the company fell 5.19% short when they announced earnings of $0.18/share. The same is true for the June 2012 quarter. Analysts were expecting RATE to earn $0.18/share and even though results were in-line, the virtual 'tie' in this case doesn't exactly go to the long-term investor.
Potential investors looking to establish a position in either BPI or RATE should do so from a short perspective. BPI is facing what could be a very long and drawn out investigation that could, in theory, bury the company- and RATE continues to demonstrate poor quarterly results. Is there a proverbial bright side to either of these companies? There could be, but I highly doubt we'll see any rebound in the next 30-60 days.