Excelling in For-Profit Education

It's perhaps a sign that the traditional educational system is broken when one of the hottest sectors is for-profit educators, like Career Education (Nasdaq: CECO  ) , Corinthian Colleges (Nasdaq: COCO  ) , Strayer Education (Nasdaq: STRA  ) , Laureate Education (Nasdaq: LAUR  ) , and Apollo Group (Nasdaq: APOL  ) .

All of the above companies focus on adult education. However, the market for K-12 is another story entirely. With federal cutbacks and state budget deficits, the for-profit companies in this sector have been ailing.

But Plato Learning (Nasdaq: TUTR  ) , a leader in online testing and assessments that focus on K-12, saw this as an opportunity to invest in its business. In the past three years, Plato purchased seven companies, with the biggest being Lightspan, a leader in Internet-based assessments. More than 1,500 school districts use Lightspan solutions.

Already, the Lightspan acquisition has had a positive impact for Plato. In the past quarter, Plato reported an 85% increase in revenues to $32.3 million.

A broader product offering means that Plato is winning bigger contracts. In early March, the company announced a $1.2 million deal with Gallup McKinley County Public Schools.

On the earnings conference call, Plato management indicated that the funding environment for K-12 is improving. Moreover, the reauthorization of the federal law, No Child Left Behind, is a big long-term positive for the company. According to the law, there is increased accountability and assessments for K-12. It's a test that, thus far, Plato has been able to ace.

Want to read more about for-profit education companies? Check out the following articles by Rich Smith:

• Strayer Poaching Traditional Students
• Corinthian Gets an A-
• Apollo Deserves Laurels
• DeVry's Decline

Fool contributor Tom Taulli is the author of The EDGAR Online Guide to Decoding Financial Statements. He does not own shares in any of the stocks mentioned.