Why K12's Shares Plunged

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 education tools provider K12 (NYSE: LRN  ) were being sent to detention by investors today as they fell as much as 13% in intraday trading after the company reported fiscal third-quarter results.

So what: Talk about a bad streak -- the bottom-line miss for K12 represents the seventh straight quarter that the company's earnings per share has missed analysts' estimates. To be sure, stacking up with Wall Street's quarterly views is hardly the be-all and end-all for a company, but it doesn't look good when a company struggles that much to effectively communicate how its financials are shaking out. For the quarter, K12 managed a good showing on the top line, as revenue of $178 million did top Wall Street's estimates. But earnings-per-share growth of 13%, to $0.18, left the bottom line short of the expected $0.21.

Now what: Growth investors can certainly understand the idea of a business investing in itself to drive the company forward. However, with year-over-year revenue growth of 37% far outstripping profit growth and Wall Street -- and, it seems, investors broadly -- left chagrined by that lower-than-expected growth, it may be time for management to tighten some screws and make sure that they're on the same page as investors. From an investor's perspective, meanwhile, if the company can't seem to get a handle on costs, it may be time to start considering whether this is a management team worth backing.

Want to keep up to date on K12? Add it to your watchlist.

Motley Fool newsletter services have recommended buying shares of K12. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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8/26/2014 4:05 PM
LRN $19.30 Down -0.73 +0.00%
K12 CAPS Rating: **

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