This Education Stock Could Be a Bargain

NEW YORK ( TheStreet) -- It doesn't happen that often, but sometimes the stock market views certain companies with such disdain that investors are theoretically paid to buy them.

Essentially, that's what may be happening when a company's enterprise value (market cap + debt + minority interests + preferred stock - cash and cash equivalents) is negative. In those situations, cash and cash equivalents exceed the sum of the other components of the EV formula, which is sometimes used as a basis for the takeover price of a company.

While it may not necessarily be what the company is actually worth, it can represent what an acquiring firm would be paying at a given point in time, since an acquirer would have to assume the debt, but would become the owner of any cash.

Of course, companies that find themselves trading at a negative EV often trade at such depressed prices for very good reasons. They may simply be in decline, and relatively large cash balances may be temporary, as poor operating performance forces these companies to continually burn through that cash.

You sometimes see small biotech or pharmaceutical names trading at negative EVs, but these are often burning through their cash as they attempt to bring products to market. Sometimes the companies are simply disliked due to negative sentiment about their industry.

The latter appears to be the case with Career Education ( CECO), which is in the for-profit education business.

This is a sector that has suffered mightily over the past few years, due to reports of questionable business practices, including misleading students into assuming large amounts of debt that they might not be able to pay back.

Since many of these loans were government-backed, tighter regulations have followed. In turn, many names in the sector have fallen sharply in recent years, as enrollments and profits have dwindled, and an industry that once had cult-like status, is now viewed with skepticism.

CECO shares have dropped 50% in the past year, as the company's total student population fell 21% for the first quarter vs. the same quarter last year.

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