Self-improvement is a great thing -- especially if you can find a way to make a buck from it. Apollo Group (Nasdaq: APOL), the company behind the University of Phoenix and many other educational programs, continues to do just that.
Revenue in the third quarter grew almost 25%, with the University of Phoenix accounting for nearly 89% of that. Margins improved in the quarter and the company posted a nearly 30% increase in consolidated net income for the quarter.
While profit is certainly important, it's equally important for Apollo to continue to put fannies in seats. To that end, enrollments climbed 23% in the quarter to 295,500 students. Physical campus enrollments climbed 9% to 141,000, while online enrollments grew 41% to 154,500. Over time, I expect that online education will become increasingly important to Apollo -- not only is it more convenient and effective for some people, but it is also more profitable for the company.
Cash flow for the quarter and year to date is a bit confusing. While reported operating cash flow and free cash flow are lower, mostly because of higher restricted cash and receivables levels, structural free cash flow (net income plus depreciation minus capital spending) is growing nicely. Now, I'm not suggesting that investors just pick and choose which metrics to use based upon what they want to see, but I would suggest that the cash flow picture isn't quite as problematic as a straight free-cash-flow analysis might suggest.
There's no doubt that the for-profit adult education market is growing. There's also no doubt that investors have been rattled by a number of scandals and accusations leveled at various companies in this sector. While Apollo has kept its nose relatively clean, it is on the defense in a couple of cases.
I am confident that the demand for adult education will continue to grow and that for-profit companies will seek to meet much of that demand. As the biggest fish in the pond, I think Apollo still has a lot of growth ahead of it, though present valuations do seem a bit stretched.
I like Apollo, but I don't think I'd like to pay so much more for these shares relative to those of competitors like Career Education (Nasdaq: CECO), StrayerEducation (Nasdaq: STRA), and ITT Educational Services (NYSE: ESI).
Hit the books with these Foolish takes:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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