Around the nation, children are settling back into another
school year as the summer draws to a close post-Labor Day. Yet
while many parents are likely focused in on their own children's
schools, it could be time to take a look at education from a
different angle, specifically, in terms of the for-profit education
This segment is often overlooked due to the high risk nature of
the space, but the volatility is also capable of generating high
returns in a short period of time. Furthermore the role of heavy
government spending on the segment could make for stable and easy
cash flows, although this could go away if the industry sees new
regulations or if students shun for-profit education programs for
more traditional counterparts.
In terms of investment potential, the segment currently has a
very pedestrian Zacks Industry Rank, although companies are widely
dispersed across the spectrum. In fact, four receive Ranks of Two
or better including a number 1 Zacks Rank for
Grand Canyon Education (
, while seven of the 23 stocks receive Zacks Ranks of 4 or worse,
including 'Strong Sell' Ranks going towards
Strayer Education (
Clearly, there is no real consensus in the sector, although it
is worth pointing out that the price trend has been decidedly
negative in the segment with many education stocks falling by over
30% in the summer break.
Some are worried that this could continue as we approach the
fall and the election, especially because for-profit education
centers have become such
an easy target as of late
. However, I find it hard to believe that the space will be going
away anytime soon as the knowledge-based economy that we find
ourselves in puts a hefty premium on skills, and these colleges may
be the only way that some can eventually compete in the globalized
Personally, I think the broad space is probably too risky for
investment at this time, but some intriguing picks are starting to
develop with companies like LOPE which has a Number 1 Rank, a P/E
below 16, and a PEG below 1.0.
The broad earnings estimate revision picture is also
looking favorable for LOPE
, but the sector risk still seems pretty high overall. Perhaps the
best way to play this volatile sector is to target top firms like
LOPE and pair them with short positions in some of the many
low-ranked stocks in the space. This could help to diversify away
some of the industry specific risk that will likely be impacting
the sector for some time to come while still allowing for profit at
a potentially lower risk level.
What do you think?
Will you be taking your portfolio back to school this fall or
have you graduated from the for-profit education sector?
Let us know in the comments below!
DEVRY INC (DV): Free Stock Analysis Report
GRAND CANYON ED (LOPE): Free Stock Analysis
STRAYER EDUC (STRA): Free Stock Analysis Report
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