After rallying for almost a decade, the stocks of private for-profit colleges such as Apollo (NASDAQ:APOL), DeVry (NYSE:DV), Corinthian College (NASDAQ:COCO), and Strayer College (NASDAQ:STRA) are in a prolonged correction mode. But after losing more than 50%, they are trading at single digit forward PEs, while two of them, Apollo Group and Strayer Education, enjoy hefty operating margins. Does it mean it is time for bargain hunters to jump in?
Qrtly Revenue Growth (yoy)
Qrtly Earnings Growth
*Fye December 31, 2013
*Fye September 25, 2013)
I don't think so. Private for profit colleges face several headwinds, especially online colleges like Apollo Group, which reported disappointing results on Tuesday after the market closed:
First, students find increasingly difficult to get loans, as difficult rates have been rising, from 8.8% in 2011 to 9.1% in 2012. Students missing loan payments cannot apply for federal aid.
Second, for profit colleges have come under close scrutiny from regulators regarding academic standards.
Third, online for profits colleges like Apollo Group have been facing increasing competition from regular colleges that develop their own outright programs or blended programs.
Bottom line: What shines like gold may be hay. I would stay away from the sector until I see signs that headwinds are turning to tailwinds. MIT and Harvard, for instance, have developed low-cost non-credit online courses.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.