Why Apollo Group Shares Tumbled

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 University of Phoenix parent Apollo Group (Nasdaq: APOL  ) were getting hit with a ruler today, falling as much as 20% in intraday tradingafter a disappointing earnings report and a ratings downgrade.

So what: Apparently, not as many people are saying "I'm a Phoenix" these days. Enrollment fell 14 percent in the quarter, leading to lower revenue and net income declining more than 50% from a year ago. The educator also said it would cut 800 jobs and shut down 25 campuses as an attempt to cut costs in response to the scaled-back demand. The outlook was similarly dismal, as management predicted a 17% enrollment drop in the first quarter and revenue declining 15%-20% in fiscal 2013.

Now what: This could be the beginning of the end for for-profit schools. Shares at major industry players including Apollo, Devry (NYSE: DV  ) , and Bridgepoint (NYSE: BPI  ) have all fallen by half over the last year as the broad market has gone up 20%. The business model has come under increased scrutiny from the federal government in recent years, as these schools rely on financial aid in the form of student loans, which later becomes student debt, in order to profit. The market's reaction seems to indicates that the schools are having trouble proving their educational merit to students amid tighter regulation. Perhaps the industry can turn things around, but I'll wait for the government investigations to stop and for the schools to prove their actual value first.

Don't miss the next update on the for-profit education sector. Stay connected with these schools by adding them to your free watchlist.

Fool contributor Jeremy Bowman has no positions in the stocks mentioned above. The Motley Fool owns shares of 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. The Motley Fool has a disclosure policy.


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