Why K12 Shares Got an A-Plus

Why K12 Shares Got an A-Plus

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 K12 , a technology-based education company that provides software which allows teachers to handle everything from student assessment to course curriculum, certainly got a passing grade today with shares rising by 18% after it reported its fourth-quarter earnings results.

So what: For the quarter, K12 delivered a 19.2% increase in revenue to $203.1 million, which it attributed almost in its entirety to 20.8% organic growth in its managed public schools segment. Although operating income decreased by 30% to $1.4 million, the company still managed to grow adjusted EPS by 20% to $0.06. Both figures easily slid past the $201 million in revenue and $0.03 in EPS that Wall Street had expected. For the full year, K12 saw average student enrollments rise by close to 13%, with international student enrollments proving the weakest link, down less than 1%. K12 opted not to issue fiscal 2014 guidance now and will do so in mid-October.

Now what: There's little denying that this was a pretty good quarter based on how easily it jumped over Wall Street's estimates. What really seems to be the reason for the rally is the 20.8% organic growth in public schools. With so many companies turning to acquisitions to pad their top-line results these days, it's good to see that some companies can grow their products the old-fashioned way. However, at 37 times forward earnings, and with the very real potential that reduced federal budgets could trickle down and hit school districts hard, I can't say K12 looks like a particularly intriguing value, here.

If anything, K12 serves as a reminder that solid companies selling at depressed prices have consistently helped generations of the world's most successful investors preserve capital, minimize risk, and achieve long-term, market-trampling returns. For one such company, you can read our free report: "The One REMARKABLE Stock to Own Now." Just click here to get started.

The article Why K12 Shares Got an A-Plus originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool recommends 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 Motley Fool has a disclosure policy.

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Originally published