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For-Profit Education Stocks: Are They Investment Grade?

Its peer Apollo has received much scrutiny for the quality of its academic offerings. The company has had past dealings with the Securities and Exchange Commission, which had launched investigations against Apollo regarding how the company recognized portions of its revenue.

Although these concerns (among others) have gone away, shares of Apollo are trading at less-than-half of what they were at the beginning of 2012. Worse, the stock is one-quarter of what it was in January 2009. I believe that there is a compelling argument here that the stock, which trades at a price-to-earnings ratio of less than 7 -- one-third of the industry average, is undervalued. The same case can be made for DeVry.

Likewise, Strayer and Corinthian Colleges (COCO - Get Report), which have both been under pressure this year, are not too far behind. What's keeping investors at arm's length is not necessarily their collective poor performances but it's the bad publicity that this sector has received.

With regards to growing student loans and what has been compared to "predatory lending" during the housing bubble, I won't argue that there are several names within the group (if not all) that have had some serious struggles with "ethics." But as with the bank resolutions to the post-housing crash, the government has stepped in with tighter regulation.

We can debate the extent of the government's involvement and whether the Gainful Employment rule has gone overboard. However, I don't believe that this process, which is critical to protecting the federal investment in our students, diminishes the importance of for-profit education and the role that they can still play in the education future of the U.S. This service will always be in demand.

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COCO $0.01 0.00%
APOL $18.92 0.00%
DV $33.36 0.00%
STRA $53.41 0.00%
AAPL $124.43 0.00%


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