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For-profit Education stocks getting slammed


Josh4580
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Stay away or buy puts.

 

Steve Eisman's short (Of the Big Short) and has a good rationale. In a rational market these companies wouldn't exist or wouldn't be able to charge what they do.

 

The Government is slow, but not stupid and will take away the purse stings soon enough. Do you really see University of Phoenix doing well if that happens. Would you hire a University of Phoenix Grad?

 

I kinda wise I went short a few months ago. Also check out Frontline.com for a great documentary on the whole thing.

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There is so much pessimism in the sector I can't help but wonder if now is a decent time to take a plunge. 

 

Let's take ESI for example:

Trades at $17.49 they have around $1.50 in net cash. 

 

They are going to earn around $8/share this year.  Next year consensus estimates are for $4.75/share. 

So lets say they increase cash to $2/share and  really miss on 2013 and get $3.50/share.  $17.49 - $2 = $15.49/$3.50 = P/E of 4.4x. 

 

Assuming a normalized EPS of around maybe $3 given the new pricing environment and a low P/E of say 8x (way below historical average) plus the cash gets to $26 or approx 50% up from today's price. 

 

I can't think of a sector that is so hated - I keep scratching my head on when the right time to buy is. 

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Stay away or buy puts.

 

Steve Eisman's short (Of the Big Short) and has a good rationale. In a rational market these companies wouldn't exist or wouldn't be able to charge what they do.

 

The Government is slow, but not stupid and will take away the purse stings soon enough. Do you really see University of Phoenix doing well if that happens. Would you hire a University of Phoenix Grad?

 

I kinda wise I went short a few months ago. Also check out Frontline.com for a great documentary on the whole thing.

 

I hope all these companies go to zero.  >:(

 

...

Shame on me, mixing emotions with investing.

 

 

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Steve Eisman's short (Of the Big Short) and has a good rationale. In a rational market these companies wouldn't exist or wouldn't be able to charge what they do.

 

The Government is slow, but not stupid and will take away the purse stings soon enough. Do you really see University of Phoenix doing well if that happens. Would you hire a University of Phoenix Grad?

 

Originally I was going to copy Eisman and short these stocks, but I didn't feel like these stocks were really in my circle of competence as it involved the US government cutting back on subsidies to these companies.  Having read Einhorn's book on business development loan fraud, I did not want to bet on the US gov't doing the right and obvious thing.  (Another example would be the payments to the Taliban and warlords via Host Nation Trucking contracts in Afghanistan.) 

 

Suppose for a second that the US gov't did remove all the private education subsidies.  There may be a few companies with decent businesses that could be worth buying if you really understood the sector???  Here in Canada the subsidy situation does not exist but there is still a private education sector (presumably it's profitable).  Unfortunately there are people who enroll in private colleges hoping that it will help them land a job (usually it doesn't).

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Many of the stocks in the sector were already over valued even with the year long negativity, over valued from a G&D perspective.  Strayer is/was 9x of book value. 

 

However, who is going to educate the population if there is not help from the private sector?  The government needs these companies if they truly want to educate folks as public sectors are already over crowded.  In addition, have you seen 4-year tuition at many universities?  There is some value around and some companies are really cheap, but of course they may get cheaper :)

 

Cheers

JEast

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Many of the stocks in the sector were already over valued even with the year long negativity, over valued from a G&D perspective.  Strayer is/was 9x of book value. 

 

However, who is going to educate the population if there is not help from the private sector?  The government needs these companies if they truly want to educate folks as public sectors are already over crowded.  In addition, have you seen 4-year tuition at many universities?  There is some value around and some companies are really cheap, but of course they may get cheaper :)

 

Cheers

JEast

 

I think there is definitely a place for the schools... maybe less so the generalized ones, but the specialized ones like the technical/trade schools, nursing/physician assistant schools especially fulfill a need out there.

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I was loaded up on COCO and it proceeded to rally about 50% quickly earlier in the year, and then came back down recently.  I dumped some of it at a modest gain recently since Leon Panetta joined the board, then resigned about a month later.  I'm not sure if it means anything but it could.  I still hold a bit as it is so cheap.

 

I'm thinking about adding some other names and diversifying across a few holdings in the sector now.

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