For Investors, It Pays to Skip School Stocks
For-profit schools spend an average of a quarter of their revenues on advertising, marketing and recruiting students, which in some cases approaches what they spend on instruction, according to a recent Senate report, which also found that they have spent a combined $3.7 billion annually on marketing and recruiting.
Further undermining potential students' views of the value of post-secondary education are the negative experiences of recent college graduates of both non-profit and for-profit schools. The Associated Press reported Monday that in its recent survey of young college graduates, half said they are either jobless or underemployed in positions that don't fully use their skills and knowledge.
It also found that median wages for holders of bachelor's degrees are down from 2000 and that the job prospects for bachelor's degree holders fell last year to the lowest level in more than a decade.
One of the few optimistic voices for the sector is that of Morningstar analyst Liang Feng, who, in writing about the prospects for the Washington Post's(WPO) Kaplan educational division, which generated $150 million in operating profits for the company last year, said that "for-profit colleges will ultimately recover from near-term challenges, but normalized enrollment, in our view, could easily fall to half of peak 2010 levels before rebounding."
That's because "demand for technical degrees has outpaced supply, and state governments have reacted very slowly to increasing demand for post-secondary vocational education," and that's not likely to change given their budget constrictions, said Feng.
Here are summaries of seven stocks of for-profit schools arranged in inverse order of market value:
7. Corinthian Colleges(COCO)
Company profile: Corinthian, with a market value of $315 million, is a for-profit education firm with more than 110,000 students and operates 118 schools, offering everything from diploma programs to master's degrees at locations in the U.S. and Canada.
Investor takeaway: Its shares are up 76% this year and have a three-year, average annual loss of 40%. Analysts give its shares one "buy" rating, 10 "holds," one "weak hold," and one "sell," according to a survey of analysts by S&P.