NEW YORK (TheStreet) -- "You get what you pay for," that popular axiom for consumers, was also a stark reminder to investors in for-profit education companies, an industry under constant government scrutiny.
Likewise, University of Phoenix operator Apollo Education Group (APOL) (up 22%) and Capella Education (CPLA) (up 12%) have done well, beating the 11.7% gain in the S&P 500 (SPY - Get Report) and the 7.20% gain in the Dow Jones Industrial Average (DJI) .
Others weren't so lucky, however. Take a look at the chart below, courtesy of YCharts.
COCO data by YCharts
The industry's biggest loser, Education Management Corporation (EDMC) lost more than 97% of its value. Corinthian Colleges (COCO) lost 96% and shares now trade for less than 10 cents. Then there's ITT Educational Services (ESI - Get Report) , which lost more than 72% of its value. And the reason is clear.
Over the past several years, these so-called "private institutions" have marketed themselves by offering a quality education and a better way of life. But as their profits grew, their students were left with mounds of debt, drawing the attention of U.S. lawmakers.
The Institute for Higher Education Policy conducted a study, revealing a link between poverty and high-enrollment numbers at for-profit institutions. IHEP said for-profit education schools profited mostly on low-income students between ages 18 and 26 and whose total household income was near or below the federal poverty level.
Now due to stricter government regulations, aimed at reducing poor student loan repayment rates (among other things), for-profit education companies have suffered ever since the industry peaked in 2009. This was at a time when the economy tanked and people went back to school to acquire more skills. Conversely, as the job market improved students relied less on these services.
Heading into 2015, investors must ask to what extent can the business economics of this industry work, given the impact of the Gainful Employment act, which seeks to protect students from (among other things) predatory lending practices. More importantly, is it worth the risk?
Consider, while companies like Strayer and Apollo have performed well in 2014, their stocks are still under water over the past three and five years.
Strayer is still down 26% and 65% in the past three years and five years, respectively. Apollo, meanwhile is down 38% and 43% during that same span. And the enrollment pool, which funds their growth is drying up.
Earlier this year, Terra M. Kennedy, a high school principal in North Carolina, said in a phone interview she would not encourage her students to attend these schools, calling them, "the last resort." Adding, "they're too expensive and deserve business detention."
Boston University conducted a study and found that students that graduate from for-profit institution are less likely to get a job than those that graduate from a non-profit school. The study also found that in the cases where for-profit graduates do get a job, they are paid far less than their traditional counterparts.
In other words, this isn't an industry that is worth investing in. Instead, now is the best time to get out, especially after some of these companies have strongly outperformed the stock market. The likelihood there will be a repeat performance in 2015 is slim. For an industry that prides itself on learning, investors should protect themselves by learning from their own mistakes.
TheStreet Ratings team rates STRAYER EDUCATION INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate STRAYER EDUCATION INC (STRA) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its expanding profit margins, growth in earnings per share and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, generally higher debt management risk and disappointing return on equity."
You can view the full analysis from the report here: STRA Ratings Report