Education is the first place people flock to during hard times, and education stocks can often be a safe haven when the investing waters turn choppy. However, the recent lawsuits industry-wide should make investors do their homework even more diligently than before when they look to invest in education providers. Let’s open the book on three such companies and see what kind of grade they earn on the investment scale.
Corinthian College (COCO)
Snapshot: A for-profit post-secondary education machine, College boasts 88 schools nationwide and 45 more locations across Canada.
Recent Price: $15.40
- Revenues rose sharply in the last six months of 2004, as sales jumped 29% to $477.8 million.
- Shares are trading at just 13 times projected earnings for its next fiscal year starting in June, according to earnings forecasts.
- Securities and Exchange Commission dropped its recent probe into Corinthian with no formal charges filed, which gave investors something to cheer about.
- Still, a number of employee and student lawsuits are raising serious questions about Corinthian’s aggressive marketing and accounting techniques.
- Despite the fact that sales were on the upswing, Corinthian’s bottom line net income dropped 6%, citing "higher overhead costs." Sounds like management deserves a "D" for its budgeting skills.
- The company is expected to close at least 10 of its schools in its Canadian division by the end of its fiscal year in June.
Apollo Group (APOL)
Snapshot: The parent company of University of Phoenix Online and Center for Financial Studies is raking in big cash for its online distance learning, campus studies and learning center programs.
Recent Price: $73.09
- With sales of more than $2 billion annually, Apollo is a powerhouse to be reckoned with in the education sector, especially with the company boasting that it has no debt on its books.
- Apollo’s growth rate of nearly 30% is twice the industry average, and a very solid sign that its foundation is stronger than most mortals, err, educational stocks.
- Company’s joint venture with Direct TV to own the Hughes Satellite System is an interesting growth proposition for its online learning division.
- Trading at more than 80 times earnings, Apollo Group is soaring as high as a Greek God in its per share price.
- The price of shares is not cheap from a revenue perspective either, as Apollo trades at seven times annual sales.
- If you are hoping for a takeover anytime soon, don’t bet your tuition on it, as the shares sell for a sky-high 17 times book value.
DeVry Inc. (DV)
Snapshot: A household name among technical and business schools, DeVry looks to revitalize its balance sheet.
Recent Price: $18.76
- The company is rumored to be in play for a possible takeover by the likes of Apollo or other industry suitors.
- Trading at just two times book value explains why DeVry is a very attractive value proposition for other companies looking to scoop up its business at a discount.
- Shares are trading near a 52-week low, which might make it an attractive investment to new buyers.
- Earnings growth slipped 5% in the past year, which is not the direction you want to head if you are trying to turn things around.
- The rumors of a potential takeover have made the shares a bit pricey for individual investors, who are forking over more than 27 times earnings for the right to own the stock.
- Shares are trading at the same price as they were in 1999. Some may view this as a positive, but long-term investors must be pulling their hair out.
Michael Abramowitz is a freelance writer based in Florida. To avoid a conflict of interest, he does not currently own any of the stocks mentioned above.
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