Don't Look a Gift Horse in the Mouth

Bridgepoint Edcuation (NYSE: BPI  ) is one of the three losing positions -- of the 19 currently held -- in my Messed-Up Expectations portfolio, the real money portfolio I run on behalf of The Motley Fool. I purchased it twice in mid-2011 at around $22 per share, and then suffered through the massive drop in price to below $10 about a year later. By late 2013, it had clawed back up to near my purchase price, but its recent earnings release for 2013's fourth quarter has put paid to that. At least in the short term.

The company was hurt in 2012, thanks to accreditation issues, especially at Ashford University, one of Bridgepoint's two brands. Those were resolved in 2013 and the agency, Western Association of Schools and Colleges, granted accreditation to the university last summer.

Unlike the price drop in 2012, the recent share price drop was for a more prosaic reason: The company missed earnings estimates. Well, that and the fact that total student enrollment had declined by 22% year over year. Plus, you could probably add management's less-than-stunning guidance for 2014, and here we are with shares down about 25% from their February high.

It's actually not as bad as the surface numbers make it appear. It reported a loss of $0.12 per share when analysts were expecting a break-even level. Most of that loss, $0.10 of it, was due to a one-time legal accrual charge, so that much should be ignored (as long as it doesn't become a regular thing); but the company still ended with a loss. On the other hand, new student enrollment was up for the quarter, by 10%.

The company's not about to go bankrupt anytime soon, however, despite the disappointing Q4 results. For one thing, over half of its market cap is sitting in cash and investments, and it has no debt. For another, it's continuing to improve its marketing, targeting potential students who are more likely to graduate and find jobs, something the administration is concerned about. Rebranding Ashford University's business school as the Forbes School of Business  at Ashford University doesn't hurt these efforts, either.

I'm satisfied that the company is on the right track and will turn the situation around, possibly sooner than a pessimistic market is willing to believe. Thus, I'm going to take advantage of the 25% drop to lower my cost basis on what I believe is a winning company, and add shares as soon as Fool trading rules allow.

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  • Report this Comment On April 15, 2014, at 12:03 PM, murph83 wrote:

    If they had accreditation issues, that is a problem. There are many accrediting organizations and almost every school, even the bad ones, get accredited.

  • Report this Comment On April 15, 2014, at 12:12 PM, KayakerRW wrote:

    What is Bridgepoint's ratio of qualified teachers to students?

    What is its ratio of teachers to recruiters?

    What percentage of students are borrowing from the federal governments and failing to repay those loans?

    What percentage of students complete a program and achieve genuine accreditation by a recognized sanctioning body (if they complete a program such as nursing, auto technician, accounting, IT specialist, etc.)?

    Knowing these numbers helps potential investors evaluate the quality of the business and its long term potential for investment purposes as opposed to short term speculation about whether its price should go up in the short term.

  • Report this Comment On April 16, 2014, at 6:43 PM, csqrd wrote:

    JIm,

    I found your perspective very interesting. I bought in 2012 because I saw greater reliance in on-line education as inevitable given the ever increasing costs of higher education, and Bridgepoint appeared to be the best company in the market for exactly the characteristics you describe. I re-evaluated this thesis after the accreditation failure.

    Bridgepoint went after an accreditation that they didn't need, but wanted for growth. They did not devote the time and energy to be successful. This management failure started the doubts. In seeing more and more name brand educational institutions trying out on-line learning individually and through cooperatives like Coursera, I decided that I had probably confused a good company in a sea of poor companies for a competitive advantage that was unlikly to last. I took my 60% loss and moved on.

    I wish you luck with your choice, but I would want to see financial signs that Bridgepoint really can be competitive in on-line learning through profitability and growing sales before reconsidering my own decision to bail out.

  • Report this Comment On April 20, 2014, at 1:41 AM, FrankoJames wrote:

    Let's hope that this company does not turn into the next Blackboard.

  • Report this Comment On April 21, 2014, at 7:20 AM, sgffjas wrote:

    Check this stock eligibility calculator http://fiis.in/stock-eligibility-calculator/

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