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Why K12 Shares Got an A-Plus

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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 K12 (NYSE: LRN  ) , a technology-based education company that provides software which allows teachers to handle everything from student assessment to course curriculum, certainly got a passing grade today with shares rising by 18% after it reported its fourth-quarter earnings results.

So what: For the quarter, K12 delivered a 19.2% increase in revenue to $203.1 million, which it attributed almost in its entirety to 20.8% organic growth in its managed public schools segment. Although operating income decreased by 30% to $1.4 million, the company still managed to grow adjusted EPS by 20% to $0.06. Both figures easily slid past the $201 million in revenue and $0.03 in EPS that Wall Street had expected. For the full year, K12 saw average student enrollments rise by close to 13%, with international student enrollments proving the weakest link, down less than 1%. K12 opted not to issue fiscal 2014 guidance now and will do so in mid-October.

Now what: There's little denying that this was a pretty good quarter based on how easily it jumped over Wall Street's estimates. What really seems to be the reason for the rally is the 20.8% organic growth in public schools. With so many companies turning to acquisitions to pad their top-line results these days, it's good to see that some companies can grow their products the old-fashioned way. However, at 37 times forward earnings, and with the very real potential that reduced federal budgets could trickle down and hit school districts hard, I can't say K12 looks like a particularly intriguing value, here.

If anything, K12 serves as a reminder that solid companies selling at depressed prices have consistently helped generations of the world's most successful investors preserve capital, minimize risk, and achieve long-term, market-trampling returns. For one such company, you can read our free report: "The One REMARKABLE Stock to Own Now." Just click here to get started.

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Related Tickers

9/26/2016 4:02 PM
LRN $13.62 Down -0.36 -2.58%
K12 CAPS Rating: *