American Public Education's IPO Invasion

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American Public Education (Nasdaq: APEI) got an A-plus on its IPO last Friday, when the company's shares shot up 80% to $35.92. Not even the plunge in the equities markets troubled this company, which provides 57 degree programs and 49 certificate programs across the Internet. What's going on here?

APE finds itself in a highly competitive market, with players including Strayer Education (Nasdaq: STRA), Career Education (Nasdaq: CECO), Apollo Group (Nasdaq: APOL), and Capella Education (Nasdaq: CPLA). But APE is different, because it specializes primarily in the military and public-service arena. Its courses have titles such as "Interrogation," "Mind of a Terrorist," and "Peacekeeping Logistics."

The online model is ideal for military personnel, who often travel and may be deployed in hostile places such as Iraq or Afghanistan. And of course, education can be critical for advancement in military ranks.

As a result, APE's business is growing at a rapid clip, with revenue having climbed 79% to $30.2 million in the first half of 2007. During this time, the operating margin swelled impressively from 11% to 19.8%. It helps that the online platform is scalable, that the cost of customer acquisition is less than $500 per student, and that roughly half of new students enrolled come via referral.

Unfortunately, sitting at about 10 times revenue, APE's stock is far from cheap. In contrast, the stocks of Strayer, Capella, and Apollo trade at multiples ranging from 4 to 9 times revenue. So it's a good idea for Foolish investors to be cautious, since the stock could be volatile; if you need proof, look no further than today's 8% drop.

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