It's no secret that the for-profit education industry has been a horrible investment since the Great Recession. But American Public Education (NASDAQ:APEI) was one of the few bright spots in the business.
The company wasn't accused of any serious recruiting violations and had a healthy mix of revenue streams that included Title IV funds, tuition payments, and -- most important -- money from the Department of Defense tuition assistance program.
American Public Education reported earnings last night that blew the cover off expectations. But before getting too excited, investors should be aware of some important caveats.
First, the numbers
Q4 revenue came in slightly ahead of expectations at $91.2 million, but the real surprise was earnings per share of $0.68. On average, analysts had expected the company to report $0.53 per share.
A big part of the beat, however, may have been the government shutdown in late 2013 that prevented some military students from continuing their classes at that time. Another big driver of gains was the company's recent acquisition of the Hondros College of Nursing in Ohio -- which performed exceptionally well.
While American Public Education's overall course registrations rose by 7% in the quarter, new student course registrations -- which provide the best picture for where a for-profit school is headed -- fell by 6%.
For the total year, the company brought in $2.33 per share in earnings, down a touch from 2013. That means shares were trading for roughly 15 times earnings. That's lower than the market in general, but as you'll see below, there's a reason for that.
"It could be another challenging year for us."
That's what CEO Wallace Boston said regarding the immediate future for his schools. While the for-profit education sector in general is suffering from tighter government scrutiny, American Public Education in particular is dealing with competition from traditional schools for high-quality military students.
Looking ahead, the company's outlook was not pretty. The midpoint of the Q1 guidance called for overall course registrations to fall 5.5% while new student course registrations are expected to dip by 15.5%. Management cited three reasons for the anticipated drop: changes in how military assistance is administered, a focus on higher-quality students (which necessarily lowers enrollment), and higher competition.
A silver lining?
Boston tried to assure investors that the company had a number of initiatives in place to stem the tide of falling course registration.
Users of American Public Education's new learning relationship management program, ClearPath, "completed the enrollment and transfer credit processes at higher rate, [and] had lower course withdrawals and drops," according to the CEO. The company will also look to increase tuition over the next two years, create differential pricing for certain in-demand degrees, and focus heavily on recruiting international students.
In the end, this is undoubtedly a high-quality for-profit educator. But that doesn't make it a high-quality investment, as it is not exempt from the same headwinds that many of its peers face moving forward.