American Public Education Is Textbook Undervalued

| About: American Public (APEI)

Summary

Emerging Market Leader.

Impairment and Loss on Disposal disrupt the Income Statment.

Strong Balance Sheet.

All information pulled from their most recent earnings call

OVERVIEW

American Public Education (NASDAQ:APEI), provides post secondary education. The segments that they operate in are: American Public Education, and the Hondros College of Nursing.

APEI's most recent earnings call was November 7th. Closing on November 17th the stock has increased 14.4%.

BOOKS

INCOME STATEMENT

American Public has seen a decrease in revenue on a year over year basis of 3.26%, or going from $76.3 million to $73.8 million. This was caused by an overall even drop in the revenues for both segments. This was met by an increase in both "Impairment of goodwill" and "Loss on Disposal".

The loss on disposal came from a write-off of a developing student registration software, costing American Public close to $4 million. The increase in impairment of goodwill cost the company $4.7 million. When adjusting for the non-recurring charges and for taxes, the quarter ended roughly flat when comparative to last quarter

During the same time frame, their net income dropped to only $326,000. However, adjusting for non recurring charges and subsequent tax changes (assuming 38% tax rate), American Public's quarter and nine month ended net incomes would be approximately, $6.2 million and $23.1 million.

BALANCE SHEET

Their assets have increased by 3.1%, or from $303.9 million to $313.3 million. This was met with a decrease in liabilities by $10.2 million, as well as an 8.3% increase in shareholder's equity.

Assets were mainly driven by cash, increasing 30.2% to over $137 million. APEI has been generating large net changes in cash over the past few quarters and will continually build on their cash pile. This will give American Public plenty of flexibility in the future if they need to take on debt, expand, acquire, etc.

American Public's balance sheet looks strong and will get even better in the future as they continue to build on their current business model.

VALUATION

PRICE TO EARNINGS

APEI currently has a price to earnings of 13.31. This is below both their sector (Services) and industry (Education training and services) averages which are 20.69 and 86.80 respectively. Excluding the non recurring charges, APEI's p/e ratio would be 11.03. Well under their sector and industry averages.

With education training and services having such a high price to earnings, this shows that the industry is in a high growth state and is still early in their product cycle. As APEI has been consistently able to produce not only positive earnings but also positive cash flow. This firmly places them as an emerging leader in an industry where competitors themselves have not yet been established.

DIVIDEND YIELD

American Public does not currently pay a dividend. Only recently has the company started to get a positive net change in cash every quarter. This quarter marks the third straight quarter of a positive net change in cash for the company.

In comparison, their sector and industry dividend yield averages which are 1.71% and 0.32% respectively. As American Public can continue to drive positive cash flows for every quarter, investors should expect the dividends to start.

RISKS

Regulation. For-profit educational institutions are one of the most sought after businesses for policy makers to regulate in today's market. With a new administration coming to the capital in January, as well as Republican dominated (U.S. Congress, State Legislatures, Governorships, etc.), American Public investors can most likely breathe for a few years. However, as sporadic as the up coming administration as shown to be in the campaign, there may not be much to hold your breath on.

CONCLUSION

COMPANY RATING

I rate this company as a A (See my instablog for ratings sheet).

The drop in revenue shouldn't be a panic for investors. As the year ends, we should be able to see a trend to emerge. Additionally, investors should not be worried about bottom line numbers either because of the two non recurring charges incurred this quarter. American Public is generating strong cash flow, they are cheap relative to their competition as well as an absolute basis.

DECISIONS TO BETTER COMPANY

They should expand the nursing division. It is the smaller of the two segments, and shows a lot of potential. Otherwise, earnings and cash flow are positive.

Disclosure: I/we 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.

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