Shares of leading for-profit education company Apollo Group
The revisions offered by management don't seem all that bad at first. Revenue for the fourth quarter ended in August was trimmed by about 3% versus the mean analyst estimate, and earnings per share were adjusted downward by a like amount. Management chalked up the lower revenue to a switch in its enrollment makeup, with more students enrolling in the Western International University Axia College program -- a program that generally produces less revenue per head.
Lower earnings, though, seem to be more of a product of bad debt expense. More specifically, Apollo Group wasn't able to book some reversals as hoped. Balance sheet management (including receivables and bad debt expense) gets a lot of attention in the for-profit education space, so I can understand why investors might be concerned.
Looking to the year ahead, management trimmed revenue expectations by almost 3% and the full-year EPS projection by $0.04. Management didn't go into quite as much detail on these numbers but did indicate that the impact of Hurricane Katrina was largely responsible. On a somewhat more positive note, management did say it expects enrollments to rise 20% for the latest quarter.
I have no ax to grind with Apollo at all, but this is why I tend to shy away from these sorts of stocks -- that is, high price-to-earnings ratios, high investor interest, and considerable competition. Had the stock's P/E been in the low teens and a bit less popular with momentum-investing types, maybe the revision wouldn't have generated such a downdraft.
Like a well-stocked schedule of classes, there are plenty of options here: Career Education
For more educational takes:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares). Though he has taken some distance-learning classes, he prefers schools with flesh-and-blood sports teams and cheerleaders. Go Hoyas!
