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What: Shares of education services provider and Motley Fool Rule Breakers pick K12
So what: Investors obviously weren't happy with a bulky expense line in K12's results. Overall operating expenses were up 38% from last year, with selling, administrative, and other operating costs soaring more than 50%. Part of the jump in expenses owed to transaction costs for the company's acquisitions, while it chalked another significant chunk up to brand building and new product launches. On the bright side, the company's business did continue to show momentum -- revenue increased 27%, while enrollment jumped 42%.
Now what: Growth is generally most appetizing to investors when it doesn't come at the cost of profitability. This quarter gives K12 investors good reason to keep an eye on costs and make sure that future growth reaches the bottom line. That said, the company sees 2011 revenue topping $500 million -- which is better than analysts' estimates -- along with solid growth in EBITDA. Making a final judgment on a business based on one quarter's results is rarely a good idea, so interested investors will want to stay tuned on this one.
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K12 is a Motley Fool Rule Breakers pick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.