K12 Shares Sank: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of online education company K12 (NYS: LRN) plunged 11% today after its quarterly results and guidance disappointed Wall Street.

So what: K12 has seen double-digit revenue and enrollment growth of late, but today's big miss -- second-quarter EPS of just $0.11 versus the consensus of $0.23 -- clearly sheds light on the problem of rapidly rising costs. Instructional expenses spiked 32% year over year while product development costs more than doubled, triggering concerns over the K12's long-term profitability.

Now what: Management now sees fiscal 2012 revenue of $680 million to $690 million, versus the average analyst estimate of $693.4 million. "We are encouraged by the strong growth this year in every part of our business and maintain a positive outlook for the remainder of fiscal year 2012," CEO Ron Packard said. It's tough to be upbeat given the trend of rising costs, but with K12 shares down about 40% over just the past three months and flirting with 52-week lows, much of the bad news might already be baked into the price.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of K12. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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