Please ensure Javascript is enabled for purposes of website accessibility

The Best Play in For-Profit Education

By Brian Stoffel – Updated Apr 6, 2017 at 9:48PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After scouring the data, I uncover my for-profit education pick.

For the past three days, I've been going through the for-profit education sector. Having been a vocal critic of the industry in the past, I realized the need to look for quality in the industry. We have examined the major risk factors facing for-profits, which include:

  1. New student enrollment numbers.
  2. Adherence to federal funding guidelines.
  3. Student-loan default rates.

After sifting through the information, I've put together this nifty chart to help us synthesize all of the information. After going through what it means, I'll reveal my diamond in the rough.

For more information on how I arrived at these numbers, see the links to the previous articles in this series.

Don't waste your time
Apollo, ITT Tech, and Strayer may emerge as solid investments, but the risks involved are too high for my hard-earned money. Taking it a step further, I have serious doubts as to whether Corinthian Colleges will even be around five years from now, given its heavy reliance on federal funding and sky-high student-loan default rates.

Investment candidates
This leaves us with three candidates for our investment dollars. Though the fundamentals look solid for Education Management, Bridgepoint, and American Public, we wouldn't be very Foolish if we didn't look at the valuation for these three companies.


3-Year Earnings Growth Rate


P/E (forward)

Short % of Float

Education Management 61% 12.4 14.0 12.5%
Bridgepoint 239% 7.8 7.7 81.4%
American Public 42% 27.5 19.4 8.4%

Three-year EPS growth from Capital IQ, all other information from Yahoo! Finance.

Second runner-up
It seems like Education Management just doesn't have the numbers to justify my investment dollars. It hasn't been publicly traded long enough to get a fix on how it can grow earnings, and the stock seems to be priced fairly given the company's prospects.

First runner-up
A quick look at Bridgepoint shows a company that is deeply misunderstood by Wall Street. An amazing 81% of shares available for trading, or the public float, are sold short. Part of that is because Warburg Pincus' private equity firm controls nearly two-thirds of the company. And Wall Street doesn't see much growth on the horizon, giving the stock a forward P/E of 7.7.

However, the runway for Bridgepoint's growth is enormous. Given the school's size and plans for expansion, I think Bridgepoint represents a great candidate for the short-to-mid-term investor. Clearly, some professional Fools agree, too, as it is an active recommendation by our Million Dollar Portfolio, Special Ops, and Hidden Gems newsletters.

My diamond in the rough
That being said, I'd rather take a decades-long view of the industry when making investment decisions. Surely, Bridgepoint will grow, but I'm not 100% clear how it'll sustain growth and avoid the problems that have fallen on the shoulders of all the other, more developed industry players.

When I look at American Public, I see a company that should still be prospering 20 years from now. First of all, its laser focus on the military community provides a key differentiator. As this military market share continues to expand, the company will benefit from having a group of focused students who get their money from outside Title IV funds. Defaults should continue to remain low as well, as its tuition costs are relatively cheap.  The icing on the cake is the fact that the company is expanding to civilian populations as well.

Interested in keeping up on the latest happenings in the for-profit education industry? Add these two companies to your watchlist and you'll always be in the know.

Fool contributor Brian Stoffel does not own shares in any of the companies mentioned.

Motley Fool Options has recommended a call spread position on Bridgepoint Education. The Fool owns shares of American Public Education and Bridgepoint Education, and holds a short position in Strayer Education. 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. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

American Public Education, Inc. Stock Quote
American Public Education, Inc.
$9.82 (7.21%) $0.66
Apollo Education Group, Inc. Stock Quote
Apollo Education Group, Inc.
Zovio Inc Stock Quote
Zovio Inc
$0.16 (-0.38%) $0.00
ITT Educational Services Inc. Stock Quote
ITT Educational Services Inc.
Strayer Education, Inc. Stock Quote
Strayer Education, Inc.
$63.02 (1.88%) $1.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.