Why Shares of Capella Education Company Dropped
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 Company were getting held back today, falling as much as 11% after it posted its fourth-quarter earnings report.
So what: The for-profit educator actually beat earnings estimates, delivering a profit of $0.79, up from $0.68 a year ago and better than expectations of $0.77, while revenue ticked down 0.9% to $106 million, slightly below the consensus $106.4 million. Those numbers were decent, but what seemed to shake investor confidence was new enrollment falling 6.8% in the quarter. New students are considered the lifeblood of the industry, and a forward indicator of future performance. If new students are declining, sales and profits will eventually follow. Overall student enrollment dropped 2.5%.
Now what: Times have been tough for the for-profit education industry as the Obama administration has cracked down on operators, at times threatening to remove accreditations, and students seem have grown weary of taking on excessive debt. Still, in the current quarter Capella expects new enrollment to recover to "slightly positive" as CFO Steve Polacek said that "performance trends stabilized in 2013." Given that moderation and the improving cost equation, I'd say today's drop looks mostly valuation-based. I'm not a big fan of the education sector, but Capella looks relatively stable for a volatile industry.
Stocks that won't keep you up at night
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal "The Motley Fool's 3 Stocks to Own Forever." These picks are free today! Just click here now to uncover the three companies we love.
The article Why Shares of Capella Education Company Dropped originally appeared on Fool.com.Jeremy Bowman has no position in any stocks mentioned, and neither does The Motley Fool. 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.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.