K12's Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of e-learning specialist K12 (NYSE: LRN  ) dropped as much as 13% overnight on extremely high volume.

So what: The New York Times today contains a front-page story on online charter schools, specifically centered on schools run by K12. The multimonth investigation paints K12 in a very harsh light: "A portrait emerges of a company that tries to squeeze profits from public school dollars by raising enrollment, increasing teacher workload and lowering standards."

Now what: The Times hints at a coming collapse of the whole online learning industry unless these profit-grabbing practices are curbed. "These folks are fundamentally trying to do to public education what the banks did with home mortgages," says one expert in the story.

Negative sentiment has not spilled over into rival stocks DeVry (NYSE: DV  ) or Apollo Group (Nasdaq: APOL  ) , even though the Times could just as easily have focused its damning analysis on them. This stock is an official Rule Breakers recommendation, but I wouldn't touch the e-learning industry with a 10-foot network cable.

Interested in more info about K12? Click here to add it to My Watchlist.