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This column was originally published on RealMoney on Sept. 8 at 3:00 p.m. EDT. It's being republished as a bonus for readers.

The quest for better jobs invariably leads many of us to get training or an education that will enhance our skills and therefore our marketability in the workplace. Several for-profit companies have been mining this demand and building profitable businesses as a result.

One of these is Pittsburgh-based

Education Management


. It provides post-secondary, career-oriented education at 71 campuses in 24 states and two Canadian provinces, as well as online. It awards a full range of degrees including associate, bachelor's, master's and doctorate. Total enrollment at EM's schools is nearly 60,000, a 12.6% increase from last year.

The stock, which trades around $34, has become a teacher's pet of two of the guru strategies I follow. They grade this stock an A, and you probably will, too, after seeing why.

The Martin Zweig Strategy

One of the strategies that likes EM is the one I base on the writings of Martin Zweig. The Zweig strategy looks for a company's earnings growth rate to be comparable to its revenue growth rate. That's because for earnings to continue to grow over time, they must be supported by a comparable or better sales growth rate, not just by cost-cutting or other non-sales measures. EM's annual revenue growth rate is 27.4%, while its earnings growth rate is 29.7%, based on the average of the three-, four- and five-year historical EPS growth rates. EM passes this test.

The Zweig strategy also examines sales growth from a quarterly angle. To evaluate this, it compares sales from this quarter last year with sales in the present quarter. EM experienced an 18.3% increase between those two quarters. The strategy then looks at the previous quarter last year compared with the previous quarter of the current year, which was 16.8%. Finally, it compares the two and wants the sales growth for the current quarter calculation to be greater than the previous quarter calculation. EM meets this criterion.

Next, the Zweig strategy looks at earnings stability. To rate with this strategy, a stock has to pass four criteria:

  • Current EPS must be positive.
  • EPS for the quarter a year ago must be positive.
  • The growth rate of the current quarter's earnings compared with that of the same quarter a year ago must also be positive.
  • Earnings growth for the past three quarters must be positive and steady.

EM passes all of these tests.

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Next, the strategy looks at earnings growth. The Zweig methodology requires EPS growth for the current quarter to be greater than that for the prior three quarters, which it is for EM. EPS growth for the current quarter must also be greater than the historical growth rate, a test that the company also passes. The company must also have persistent annual earnings growth and long-term -- defined as more than five years -- EPS growth. Again, EM passes both of these.

Finally, a company must not have a high level of debt in order to pass muster with the Zweig approach. A high level of total debt with its accompanying high interest expenses can have a very negative effect on earnings if business turns down even moderately. With zero debt, EM's debt-to-equity ratio can't get any lower.

The Peter Lynch Strategy

EM also gets high marks from the strategy I base on the writings of Peter Lynch, which labels the company a "fast-grower." EM earns this title, because its annual growth rate exceeds 20%.

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This strategy emphasizes Lynch's P/E/G ratio, which is the price-to-earnings ratio relative to the growth rate. EM's P/E is 26.58, and its growth rate is 29.67%, which gives it a favorable 0.90 P/E/G; 1.0 or less is acceptable under the Lynch approach.

For companies with sales greater than $1 billion, this methodology requires that the P/E ratio remain below 40. EM, which has sales of $1.02 billion, has an acceptable P/E of 26.58.

This methodology favors companies that have several years of fast earnings growth, because such companies tend to have a proven formula for growth that, in many cases, can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, and EM fits this nicely with its growth rate of 29.7%, based on the average of the three-, four- and five-year historical EPS growth rates.

The final criterion for a fast-grower to meet involves the debt-to-equity ratio. And as with Zweig's strategy, EM's zero debt earns it a pass.

EM is in a fast-growing market, has an established position in the market and a good financial track record. It gets a report card filled with A's, making it a stock worth placing in your portfolio.

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John P. Reese is founder and CEO of, an Internet investment research and stock analysis firm selected as one of Forbes Best 100 sites on the Web. He is also co-author of

The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best

. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback.

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