Why Shares of For-Profit Schools Failed

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 educators Apollo Group (NAS: APOL) , ITT Educational Services (NYS: ESI) , Education Management Corporation (NAS: EDMC) all dropped as much as 10% or more following President Obama's re-election last night.

So what: The Obama administration's skepticism of the for-profit education sector has been made clear in the past four years, as the Department of Education has placed increased oversight on such schools, many of which spend more on marketing and recruiting than on education and have poor graduation rates, and whose students have the highest loan default rate. The department has set rules to restrict funding if the schools cannot meet certain milestones, and as a result enrollment rates have fallen.

Now what: Obama's re-election means these policies will almost definitely continue for the next four years. Many of these stocks have fallen sharply from all-time highs years ago, and the onus will now be on them to prove they are a worthy service to students and that they can profit without taking advantage of the student loan system, which is the ultimate source of their revenue.I think the for-profit education model has been revealed as a broken one, but at the very least investors would be wise to wait until enrollments and revenues improve as a sign of a turnaround.

Don't miss out on the last news on the for-profit education sector. Add these companies to your Watchlist.

The article Why Shares of For-Profit Schools Failed originally appeared on Fool.com.

Jeremy Bowman and The Motley Fool have no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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