Why Corinthian Colleges 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 Corinthian Colleges (NASDAQ: COCO  ) were headed to detention today, falling as much as 18% after the SEC initiated an investigation into the for-profit university.

So what: Yesterday after hours, the SEC delivered a subpoena to Corinthian demanding documents related to areas including student recruitment, attendance, degree completion, job placement, loan defaults, and compliance with U.S. Department of Education rules. The investigation follows two subpoenas issued by state attorneys general in recent months. Recently, the Obama administration has been cracking down on for-profit colleges, many of which load up students with federal debt without leading them to jobs that allow them to repay it, and the SEC is already investigating Corinthian's peers.

Now what: Education stocks have gotten crushed in the last year amid across-the-board drops in enrollment, and revenue and profit along with it. The industry essentially functions as a commodity with no single school differentiating itself to a great degree, and Corinthian is no different, having missed EPS expectations in the last two quarters. With the negative pressure in the industry driving away students and regulatory concerns intensifying, I'd stay away from Corinthian and its peers.

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