Five Education Stocks that Destroyed Your Career
Needless to say, it has been a disgusting year for for-profit education. Here are five for-profit education stocks that may have destroyed your career by annihilating your life savings this year: CECO, COCO, STRA, LOPE, and DV.
After reaching record highs in 2008 and 2009, the for-profit education sector has done nothing but tumble downwards in 2010 and 2011. Strayer Education (NASDAQ: STRA), for example, is down from the $250s to the $90s. Corinthian Colleges is down over 85% from its highs. Career Education (NASDAQ: CECO) isn't doing too much better, having lost three quarters of its stock price. And once commanding a stock price of over $90, Apollo Group (NASDAQ: APOL) now sits around $45. Not good numbers, to say the least.
To see why, an investor merely needs to pull up the latest earnings report from any of the companies. Corinthian Colleges' (NASDAQ: COCO) last quarter was horrendous. Profitability was slashed, revenues were down, its CEO abruptly resigned, a chairman said the company needed "fresh leadership," and that was after the stock had already taken a beating from the news that its student placement rates had been exaggerated.
Earlier this year, for-profit colleges were severely scrutinized for their high debt levels, aggressive recruitment practices, and "fisherman's tale" placement rates. Despite their glossy viewbooks and glitzy commercials, the reality of for-profit education degrees became clear in 2011: a degree carries a massive debt burden and few job prospects in today's economy.
James Altucher, an outspoken critic of for-profit education, offered his explanation on the topic in his popular blog: "The problem is that college costs have risen 1000% in the past 30 years while healthcare has risen 700% and inflation has risen 'only' 300%. Colleges have made use of the myth that you can't get a job unless you have a college education." (Altucher, a successful venture capitalist and entrepreneur, suggests a wide variety of alternatives to college, including eight general suggestions.)
Enrollment rates have slid off a cliff, and the costs of regulatory compliance have skyrocketed. Apollo Group, Corinthian Colleges, and Career Education have seen declines of 20-35% this year in new student enrollment. Without growth, every investor knows that a company does not deserve a high price-to-earnings (P/E) ratio. While Apple, Intel, and Netflix all have P/E ratios over 10, most for-profit education stocks have sunk below 5. This indicates that investors are willing to pay less for the future potential of these companies than more established (and higher-growth) tech stocks.
Here is a list of the year-to-date performance of the for-profit education sector:
- Career Education: -66%
- Corinthian Colleges: -54%
- Strayer Education: -40%
- DeVry: -30%
- Apollo Group: +14%
- American Public Education: -1%
- Grand Canyon Education: -25%
This is what happens when investors realize what the U.S. Government Accountability Office knew last year: "Undercover tests at 15 for-profit colleges found that 4 colleges encouraged fraudulent practices and that all 15 made deceptive or otherwise questionable statements." One former admissions representative explained the reality of for-profit education: "I remember the training for the position. It was essentially training for a sales job. We learned sales techniques such as 'the seven-step sales process; and 'the cookie close.' We were told how enrolling a student was a psychological game."
Well, investing is a psychological game, too. As the above numbers demonstrate, investors have stopped believing the sales pitch.
