Why American Public Education's Shares Soared

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 for-profit educator American Public Education (Nasdaq: APEI  ) got an "A+" from investors today, rising as much as 19% in intraday trading, after the company reported second-quarter earnings.

So what: On the bright side, American Public Education's second quarter topped expectations. The company delivered $74.6 million in revenue and $0.51 in earnings per share, which topped Wall Street's expectation of $0.45 in per-share earnings on $72 million in revenue.

The quarter, however, did confirm concerning profitability trends, as expense growth of 30% easily outpaced revenue growth of 23%. That left little growth in operating profit -- it was up less than 1% as compared to a year ago.

Now what: The for-profit-education business has been a tough one of late, as regulators have cracked down and investors have been skittish. American Public Education's quarter appears to buck some of that trend, as total net course registrations were up 18% from last year even though registrations by new students grew just 4%. The company expects that new student growth rate to fall flat in the upcoming quarter.

One other interesting thing that I couldn't help but notice in APEI's quarter is that while overall expenses expanded significantly for the company, the actual costs of providing educational services had markedly slower growth. That slice grew 14% from last year versus a 49% jump in selling and promotional spending. In light of the bad press that for-profit schools have gotten, as well as the highly competitive nature of the industry, this makes some sense. However, investors may want to keep an eye on this trend because, as we've seen with Bridgepoint (NYSE: BPI  ) , oversight bodies can start to get a little concerned when spending is channeled more toward marketing than educating.

Want to keep up to date on American Public Education? Add it to your watchlist.

The Motley Fool owns shares of American Public Education and Bridgepoint Education. Motley Fool newsletter services have recommended buying shares of American Public Education. Motley Fool newsletter services have recommended writing puts on Bridgepoint Education. 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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