Why Bridgepoint's Shares Got Slammed
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 for-profit educator Bridgepoint Education (NYS: BPI) were getting expelled by investors today, falling as much as 28% in intraday trading after the company revealed that it had been put on "special monitoring status" by its accrediting body.
So what: Rewind to earlier this week, and Bridgepoint's shares were tumbling after the Western Association of Schools and Colleges denied Bridgepoint's Ashford University accreditation. In sum, the WASC said that it wasn't convinced that Bridgepoint had properly aligned its resources towards providing a top-notch educational experience. In particular, it highlighted the fact that there's been a huge number of dropouts at Bridgepoint over the past few years, even as enrollment has soared.
Today, we found out that the Higher Learning Commission -- the body that currently accredits Ashford U -- sent a letter to the school that basically read, "Yeah, what WASC said." HLC is now requiring that Ashford provide a report to HLC by August 10, addressing its concerns, and allow an HLC "advisory visit" no later than October 9. The body will then review all of this at its meeting in February of next year and consider whether or not to continue to accredit the university.
Now what: On Monday, I wrote that it was "too early to call this a disaster for Bridgepoint" -- a view that a few readers took issue with. Well, then, is it a disaster now? I can say this much: It's getting a lot closer.
As it was, it appeared that the days of HLC accreditation for Ashford may have been numbered because of the university's shift to online education, which means that the bulk of Ashford's schooling is now outside of the geographic region that HLC oversees. However, the next evaluation from HLC wasn't supposed to take place until 2014/2015. That was great, because it gave Ashford time to comply with WASC, while still staying accredited. With HLC turning up the heat, there's now the very real, very near-term risk that Ashford could lose accreditation and, with it, the ability to use federal financial aid.
The downside here is obvious -- and huge. If you're searching hard for the silver lining, here's what I've got: The stock is now considerably cheaper for new buyers and, if the company buckles down and scrambles, it may be able to put in changes that will appease both HLC and WASC. In its filing with the SEC, Bridgepoint noted that there's a middle ground with HLC that would allow Ashford to maintain accreditation "with ... monitoring" or "continue accreditation under sanction." Either sounds like possible ways that the school could maintain accreditation while working towards addressing its shortfalls.
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