Why Apollo Group Shares Dropped

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 flunking out today, falling as much as 12% after a disappointing outlook in its earnings report.

So what: Reflecting the broader trend in an industry that's been shrinking under increased oversight from the Obama administration, Apollo reported decreased student enrollment for the third quarter in a row, as new student signups dropped 15%. Revenue and net income both fell by about 10%, and the company trimmed its 2013 operating profits forecast by about 5%. The for-profit educator handily beat estimates for the quarter, but the market is clearly more concerned about its future.

Now what: To make matters worse, Apollo is expected to be put "on notice" by the agency responsible for its accreditation. The for-profit education industry has come under fire for excessive student loan default rates and spending more money on marketing than on education. Some observers believe this could be the beginning of the end for an industry whose major source of income is student debt. Perhaps the industry can turn around this negative perception and declining enrollment, but I'd need to see structural change within these institutions before I buy in.

Don't miss this company's next report card. Add Apollo Group to My Watchlist.


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