Why Capella Education Shares Popped

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 Capella Education were looking smarter today, gaining as much as 13% after turning in a better-than-expected earnings report.

So what: A 13% increase in new enrollment helped the for-profit educator beat top-and-bottom-line estimates, even though overall enrollment was down 0.9%. Earnings per share of $0.83 were down from $0.85 a year ago, but much better than the $0.66 analysts expected. Revenue, meanwhile, fell 2.3% to $103.7 million, slightly ahead of projections of $102.7 million.

Now what: While it's natural for shares to rise after a strong earnings beat, Capella isn't out of the woods yet. New enrollment didn't grow fast enough to replace outgoing students, and management said it expects the number of new students to decline by mid-single digits in the current quarter. With the Department of Education tightening its oversight on these schools, I'm wary of the industry in general, and with a P/E of 18, Capella doesn't look like such a bargain. I'd pass on this one. {%sfr}

The article Why Capella Education Shares Popped originally appeared on Fool.com.

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