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TheStreet Open House

Will Bridgepoint Be Held Back a Year?

Revenue and earnings are bright spots for Bridgepoint. Bridgepoint is on the honor roll with revenue quickly nearing $1 billion dollars annually, an improvement of 9.2% over last year. Based on revenue and an apocalyptic future price-to-earnings ratio of 5, it appears the selloff is beyond reasonable and likely short-lived. The industry-wide earnings ratio is estimated at near 20, with Apollo, DeVry and Corinthian near 10.

Corinthian missed by a penny on May 3 when it reported quarterly earnings of 15 cents a share. Apollo reported $1.20 in earnings on June 25, beating estimates by 23 cents. Bridgepoint's next earnings release is scheduled for August 7. Two days later, DeVry reports, and we should have a very good idea of what to expect. As a result, expect increased volatility for DeVry through earnings.

Insiders hold an abundance of shares and didn't sell enough in the previous six months to develop a clear bias. I like to see management and investors interests aligned. With Bridgepoint, I can say that's the case.

Buy News-Driven Sell-Offs

Based on my experience with gap-downs following news-driven events similar to those at Bridgepoint, investors will see short-term lows Tuesday or Wednesday. Monday's low testing $14 with a strong bounce higher suggests it won't take much time for the market to figure out its first knee-jerk reaction may be overdone.

Want to see a classic news-driven crash based on a possible problem result after the fact? Take a look at Visa (V), which fell further and further on December 16, 2010.

I recall that trading day, and my opinion about Visa was the same as my current opinion of Bridgeport: Shares are oversold and will recover. Visa dropped as a result of Federal caps on debit card fees. The selloff proved to be a very good entry for a short-lived bargain.

Visa traded at a low the day after the large price drop and hasn't traded as low since. A year and a half later, Visa trades at about double the price. This is a classic pattern I see often, and you can, too. Simply use your software to look at charts from the past few quarters and review the ones that gapped down the next day. Ask if the reason for the drop is a material impact or something the company can do something about.

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