FR: For-Profit Schools Aren’t All Bad

Article: For-Profit Schools Aren’t All Bad

The next article in my “Fool Revisited” series is another sector piece, and this one is ugly. This may have been a sector piece, but I tried to defend the for-profit education industry. After all, one of my college degrees came from a for-profit school, though it wasn’t among the ones that I profiled in this article.

For-profit schools tend to be online for the most part, though many offer in-person classes as well. The best known of these schools – the University of Phoenix, which is owned by the now private Apollo Group – does both, making it easy for anyone to go to college. However, with most public colleges offering online programs, I fail to see the reason why anyone would attend these for-profit colleges, though there are numerous reasons why people choose one school over another.

Here is an ancient tweet announcing the article:

https://twitter.com/GuruEbby/status/117007367530487808

This is also the first article that I wrote that has companies no longer in the public space, though there will be some coming later as well, including the next one in this series. I have calculated the return of these companies through their departure from the public markets, though only two have technically left: Apollo Group was purchased by private equity in May 2016 and delisted in January 2017, and ITT Educational Services went bankrupt in September 2016. A third company – Education Management Corporation (Nasdaq: EDMC) – is technically still public though it looks like it is on its way to bankruptcy.

Needless to say, unless an investor had foresight to invest in Graham Holdings Company (NYSE: GHC) – owner of Kaplan University (among other companies) –  they would have been better investing in the S&P 500, with the compound annual growth rate (CAGR) and total growth of the others failing to beat the S&P 500 from article publication (September 22, 2011) through January 12, 2018 (or delisting from the exchanges):

Stock Start Price End Price CAGR Total Growth Value of $10,000
American Public Education (Nasdaq: APEI) $34.76 $25.70 -4.67% -26.06% $7,394
Apollo Group $40.42 $9.99 -22.94% -75.28% $2,472
ITT Educational Services $59.37 $0.36 -64.00% -99.39% $61
Graham Holdings Co. $189.12 $577.05 19.33% 205.12% $30,512
Adtalem Global Education (NYSE: ATGE) $35.59 $46.30 4.26% 30.09% $13,009
Education Management Corporation $16.00 $0.01 -73.69% -99.94% $6
S&P 500 $1,129.56 $2,786.24 15.38% 146.67% $24,667

Source: Yahoo! Finance & author calculation; Stock prices include dividends & stock splits

The positive gaining Adtalem Global Education – the company previously known as DeVry – has had some issues, which partially prompted its name change. Despite its stellar performance, Graham Holdings seems too reliant on Kaplan and other its other education holdings for it to be a solid investment.  Personally, I’d avoid this sector at all costs. , so stay away unless there is some other investment strategy behind your decision, like shorting or options. There are plenty of other public companies worthy of investment that you don’t have the same issues.

Until next time…

Disclaimer: I do not own currently own shares in any of the mentioned companies, and I have no plans to purchase shares of either company within the next 60 days in any account in which I manage investment funds. You can read a little about my personal investment philosophy here.

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