James Dennin, Kapitall: Silicon Valley is targeting education as college enrollment falls. Could education stocks see growth as a result?

The education system in this country is rapidly changing.

American students lag much farther behind their peers than was previously thought prompting calls for reform. Student-debt is ballooning, and that, in turn, is causing the university system to contract. Many students are seeking out options in the for-profit education sector.

Read more Kapitallist analysis on for-profit educaton companies. 

These shifts have started to earn the attention of analyists and investors. 

Educational technology has emerged one of the most enticing arenas for venture capital firms this year. Companies like Duolingo and Renaissance Learning have already secured multi-millions of dollars in  funding. And investors seem hungry for more. 

Bloomberg predicts a "death spiral" for small colleges, citing numerous examples of small programs that have had to reduce their operations or been acquired by larger institutions. The ratings agency Moody's has downgraded an average of 28 schools each year in the last five years, more than double the average for the preceeding twelve. 

Incidentally, there are a number of heavily discounted stocks in the educational services industry. A number of reports of dubious lending practices at for-profit colleges might have driven these stocks lower.

Right now 1/3 of the entire industry trades at a discount, if you track levered-free-cash-flow to enterprise-value ratios. The companies have a lot of cash on hand relative to other companies of their size. 

Assuming a greater number of students accept the legitimacy of online and digital learning; and assuming questionable for-profit operations clean up their act, can we expect a big year from for-profit education stocks? 

Use the list below to begin your analysis and let us know what you think in the comments. 

Click on the interactive chart to view data over time. 

 Will any of these education stocks see growth? Use the list below to begin your analysis. 

1. Cambium Learning Group, Inc. ( ABCD): Provides research-based education solutions for US students. Market cap at $91.32M, most recent closing price at $1.92.

Levered free cash flow at $29.76M vs. enterprise value at $205.45M (LFCF/EV ratio: 14.49%).  

 

2. Apollo Group Inc. ( APOL): Provides educational programs and services at all levels of higher education. Market cap at $3.89B, most recent closing price at $34.29.

Levered free cash flow at $368.97M vs. enterprise value at $2.86B (LFCF/EV ratio: 12.9%).  

 

3. Bridgepoint Education, Inc. ( BPI): Provides postsecondary education services. Market cap at $1.05B, most recent closing price at $19.31.

Levered free cash flow at $43.60M vs. enterprise value at $336.83M (LFCF/EV ratio: 12.94%).  

 

4. Capella Education Co. ( CPLA): Provides online postsecondary education services in the United States. Market cap at $814.18M, most recent closing price at $65.75.

Levered free cash flow at $64.44M vs. enterprise value at $603.63M (LFCF/EV ratio: 10.68%).  

 

 

5. ITT Educational Services Inc. ( ESI): Offers postsecondary-degree programs in the U.S. from bachelor's to master's. Market cap at $817.32M, most recent closing price at $34.90.

Levered free cash flow at $102.05M vs. enterprise value at $471.20M (LFCF/EV ratio: 21.66%). 

 

6. Strayer Education Inc. ( STRA): Provides various academic programs through traditional classrooms and Internet. Market cap at $496.7M, most recent closing price at $47.26.

Levered free cash flow at $99.83M vs. enterprise value at $508.77M (LFCF/EV ratio: 19.62%).  

 

7. Universal Technical Institute, Inc. ( UTI): Provides postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle, and marine technicians in the United States. Market cap at $336.65M, most recent closing price at $13.66.

Levered free cash flow at $27.05M vs. enterprise value at $252.41M (implies a LFCF/EV ratio at 10.72%).  

(List compiled by James Dennin, a Kapitall writer. Monthly returns sourced from Zacks Investment Research, all other data sourced from Finivz.)