Shares of DeVry (NYSE: DV ) hit a 52-week low today. Let's take a look at how the company got there to find out whether cloudy skies remain on the horizon.
How it got here
DeVry hasn't been alone in the for-profit-education bloodbath, as the entire industry has been under regulatory fire since last summer. However, it had been (and remains) one of the most resilient of the major for-profit college stocks, even after a disappointing fourth quarter brought its high-flying ways down to earth:
DV Total Return Price data by YCharts
Bridgepoint Education (NYSE: BPI ) has seen top-line growth in recent years, but has recently seen net income fall back a bit. DeVry has seen a similar trend, but its net income has fallen off in a bigger way, torching shareholders at the same time.
DV Revenues TTM data by YCharts
Although these important metrics are all higher than they were five years ago, a rapid and worrying decline in net income and free cash flow underscore larger concerns with the long-term viability of a business model that's been repeatedly criticized for poor education quality underwritten by federal aid.
What you need to know
DeVry is only second in its peer group with genuinely positive earnings growth since 2009, although a couple of bad quarters could quickly wipe out that progress. Its net earnings, as you can see in the chart above, have fallen, leading to compressed margins thanks to a more resilient top line.
|
Company
|
P/E Ratio
|
Annualized 3-Year Earnings Growth
|
Net Margin (TTM)
|
| DeVry |
9.7 |
8.0% |
9.8% |
| Apollo Group (Nasdaq: APOL ) |
7.0 |
0.9% |
13.6% |
| Strayer (Nasdaq: STRA ) |
11.3 |
(3.6%) |
15.6% |
| Corinthian Colleges (Nasdaq: COCO ) |
NM |
NM |
(0.02%) |
| Bridgepoint Education |
7.2 |
47.9% |
15.9% |
Source: Yahoo! Finance. NM = Not material because of negative earnings.
Its peers, save Bridgepoint, aren't doing any better, but at least Apollo, Strayer, and Bridgepoint have (for now) managed to maintain double-digit net margins. Both Apollo and Strayer are already in the midst of their own downturns, though, so it's hard to argue that the low valuations attached to each stock are unwarranted.
Bridgepoint, Apollo, and Corinthian also suffer some of the worst withdrawal rates in the nation, as my Foolish colleague Dan Newman pointed out in his deconstruction of the student loan bubble. The costs of these for-profit colleges can certainly become an issue for those of modest means. My fellow Fool Travis Hoium found that DeVry's accounting bachelor's program could cost students $72,000. In-state tuition is typically much less at most reputable state universities -- I know mine was!
What's next?
Where does DeVry go from here? That will depend on whether public perception and political pressure continue to weigh on the company's ability to recruit paying students. The current slide could become a steeper descent as more and more information comes out on the evidently inadequate benefits of for-profit education relative to its cost, regardless of whether DeVry deserves to be lumped in with the rest. The Motley Fool's CAPS community has given DeVry a two-star rating, reflecting poor opinions of its potential.
Interested in tracking this stock as it continues on its path? Add DeVry to your watchlist now for all the news we Fools can find, delivered to your inbox as it happens. Political pressure can bring boom or bust, so the 2012 election may be critical for DeVry and its peers. To discover a handful of other companies that could explode after the election, take a look at The Motley Fool's newest free report. Don't be left adrift as the political tides shift -- claim your free report now for the information you need to stay ahead of the game.
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