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Short Alert: Corinthian Colleges

|About:Corinthian Colleges, Inc. (COCO)

I am a big believer in higher education and job training to get you to that next level; a higher paying job. This only translates to a higher standard of living later and it sets a good example for the youth of this nation. Too many people are being forced to drop out of school only to pick up a job to support the family. Ultimately, family does come first but it is a shame to see a young person put their dreams, hopes and aspirations on hold. Hopefully, this job market speeds its recovery sooner than later so the demand for college and job training will be robust. As for different colleges, there is a wide range from state schools to the Ivy League and privates. However, there is a college system that is worse by far; for profit colleges. These businesses are more focused on the business transaction rather than the actual important factor of obtaining an education. The main company that I will be looking at today is Corinthian Colleges Inc. (NASDAQ: COCO).

While getting that next level of education is highly recommended in today's economy, many students cannot afford to keep up with the rising cost of tuition and the ensuing loans that follow. Additionally, the lack of jobs makes it difficult for graduates of traditional universities to find jobs. Instead, some students may turn to for profit colleges that try to appeal as an alternative but there are very few similarities. Bloomberg published a story back in 2010 on a student that went to a for profit college with the hopes of designing video games by the time she was graduated. The end result was far from her expectations. After graduating with $70,000 in debt from the school, she was only able to get a $12 an hour job recruiting people for the video game industry and she ended up losing that job a year later. The bottom line here is that these degrees do not hold an equivalent to a traditional college, in the eyes of big companies.

Corinthian Colleges offers a wide variety of job training and traditional university subjects through its main schools of Everest, WyoTech and Heald. The company has 91,460 students enrolled as of June 30, 2012. Overall, the company runs 100 schools in 26 states and 16 schools in Ontario, Canada.

Fundamentally, the stock is in good shape but this stock could qualify for a value trap, so don't get suckered in. Additionally, the stock's price action recently broke out below its support in a sideways trend. This could be a warning that more downside in near in the short term, as well as the long term. The bottom line here is that, on paper, the company looks like a buy but the business model is not going to last. The U.S. government has begun putting pressure on these schools and that is a major red flag for shareholders and students, alike.

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.

Stocks: COCO