Bridgepoint: Huge Profits, but Possibly No Future

San Diego's Bridgepoint Education, the for-profit university that Sen. Tom Harkin of Iowa bluntly calls "a scam," is amazingly profitable. It sports a 25.30% return on assets and a 44.7% return on equity, to go with a profit margin of almost 16% and an operating margin of 26.28%. What's more, its balance sheet is well nigh pure. But as of yesterday (July 13) its price-earnings multiple was an astoundingly low 3.64 -- astoundingly low, that is, for a technician who only looks at numbers and ratios. For an analyst who looks at fundamentals, the stock may still be overpriced because the company's future is in doubt.

The stock lost more than half its value this from Monday to Friday. One accrediting agency slammed its educational quality, and then yesterday the agency that now accredits it wants to take another look. If the second accrediting organization thumbs down Ashford University, which is most of Bridgepoint, the company is out of business, because its students can't get federal grants and loans if the university is not accredited. Bridgepoint gets almost all it revenue from the government.

There is another factor. Insiders have been dumping the stock. On July 25 of last year, Wall Street's Warburg Pincus, which owned two-thirds of the stock, said it wanted to sell. Bridgepoint stock plunged 11.61% that day. As of the end of March of this year, Warburg Pincus still had its position.

On Feb. 2 of last year, I wrote a column saying that while I thought Bridgepoint was a smelly company, its stock might go up. The reason was that more than 60% of its stock was short, meaning most speculators were betting it would go down. Any good news would force the shorts to cover (buy the stock), thus running it up. That happened. The stock went up in a short squeeze.

But on May 9 of this year, I wrote that Bridgepoint stock might be headed down. (It was receding already, but I didn't think it would plunge this far this fast.) This time, there were just too many negatives out there, I believed, and even the fat profits and a high short position might not be enough to hold the stock up. And there are negatives by the bushel: the Department of Education is trying to discipline the company; the accreditors are now realizing that the educational quality is extremely low; New York, North Carolina and Iowa are investigating the company for non-compliance with consumer laws. In short, too many people are aware that this company and many other for-profit companies are basically boiler rooms.

Monday will be interesting. Bridgepoint is technically ridiculously cheap, based on PAST performance. But investors and speculators alike will be aware that this company's future is very, very cloudy.

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hello Don

so sad for the naive who look to these kinds of institutions to get a top rate education...they do get an education tho of an entirely different kind

they and the government subsidies get milked of bucks that could be put to better use

"trust no one" seems to be the watch word of the day in so many situation

You are so right. The victims get a sales pitch: get a degree and get a great job. But it doesn't happen -- and won't happen in an economy in which young people with good grades from top colleges can't get jobs. The Bridgepoint victims pile up massive personal debt and are likely to drop out. But the San Diego business community seems to think Bridgepoint is wonderful. That speaks volumes. Best, Don Bauder

people in San Diego are living on a river in Egypt Don

Denial

San Diegans fear that the area will lose jobs over this accreditation donnybrook. If Bridgepoint's Ashford does not get accreditation from the Western Association of Schools and Colleges, which recently gave it a thumbs-down, but somehow manages to remain accredited by the Higher Learning Commission of the North Central Association of Schools and Colleges, it will have to move more employment to Denver, where it already has a major operation. Higher Learning want schools to have more employment within its area, which includes Denver. If Ashford does not get accreditation from either body, then it will likely go out of business, and employment will be slashed completely, unless it tries to stumble along in some other kind of enterprise. Best, Don Bauder

Actually, there is a niche for operations like this one, and it is legitimate. There are some bright people out there who just cannot abide the usual folderol of academia, and especially don't want to be in classrooms.Some are in remote locations that just don't permit going to class on a campus or learning facility. They should be served, and often are not served, by the "usual" educational institutions. Something like Bridgepoint could fill the gap, but with a real faculty teaching real courses and assessing performance. Sadly, Bridgepoint is much like some sellers wherein the sales pitch, not the product, is what is being sold. Think of a timeshare pitch, or some of the other door-to-door offers. If you don't buy on the first visit they know, or think they know, that there's no use following up with you. Reminds me of Solahart, the outfit that was selling those self-contained solar water heaters to place on the roof (the ones with the tank and panel all there together) a quarter-century ago. The things actually worked, but the company and its selling approach was all pitch and nothing else.

Bridgepoint is, indeed, a marketing machine. As the accreditors point out, the company puts little of its resources behind education. Its big spending is on recruitment. I would say there is a market for online education, but the institution providing it has to be dedicated to education. Bridgepoint is not. Best, Don Bauder

The question is whether Bridgepoint can turn itself around. That would require a complete culture change and personnel turnover, including at the top. Best, Don Bauder

Online education??? How do you know who is taking the test??????

Good point. A Department of Education official told a Senate committee that this is one of the problems with Bridgepoint: is the enrolled student the one actually taking the test or sitting behind that computer on any given day? I had that in an earlier Bridgepoint column -- I think the one in May. I think institutions with tight controls might be able to handle this situation. Best, Don Bauder

You would have to have a legit proctor to admin the test.

Ashford will have to fix the problems identfied in the WASC report or Higher Learning will probably be forced to revoke accreditation. Prior to the WASC report it appears that Ashford could satisfy Higher Learning merely by shifting headcount from San Diego to Colorado. Now, Ashford is going to have to hire perhaps hundreds of professors and counselors, reduce spending on marketing, beef up academics, reduce the drop out rate, and address WASC's claim that the curriculum lacks academic rigor. This is going to be very expensive. After these changes Bridgepoint's gilded financial ratios are going to be tarnished. The state attorneys general are going to use the WASC report to go after Bridgepoint like a pack of starving junk yard dogs. WASC put the kibosh on Ashford and Bridgepoint is kaput.

You may well be right. It will be interesting to see tomorrow morning (Monday) how the market goes. Enough big investors now know how vulnerable this company is. But the technicians will see those fat profits and that extremely low P/E and feel like jumping aboard. Even technicians, though, are capable of examining fundamentals. Best, Don Bauder

B- Bridgepoint/Ashford will never do any of the things you described, it would destroy the profit in their scam...... make them (and all the other diploma mills) carry half or 75% of the paper they need for tuition, then lets see how well they do, when no one pays them back b/c their worthless degree, which is not worth the paper it is printed on and they cannot get a job. lend.....

Those are the relevant questions: can -- and would -- Bridgepoint spend the necessary money to remake itself? If it spent that kind of money, as Burwell points out, its profits would plummet along with its stock price. Best, Don Bauder

Some investors think Bridgepoint is a good investment even though it could go out of business. One columnist thinks Bridgepoint is a good speculative bet because he thinks it will satisfy the accreditors and has cash and investments of $7.80 a share. I think the columnist is wrong: If Bridgepoint satisfies the accreditors it won't make money.

http://seekingalpha.com/article/719701-why-i-bought-bridgepoint-education-today

Seeking Alpha is a top-notch operation, but there is a writer there who has been very bullish on Bridgepoint for a couple of years. Ditto Motley Fool. They have egg on their faces now, of course. Bridgepoint stock is up half a percentage point half an hour into this morning's trading. Not a big bounce given a plunge of more than 50% last week. Best, Don Bauder

We all should have expected today's editorial in the Manchester Mill extolling the benefits to the local economy provided by Bridgepoint. It describes the company as a "Good Corporate Citizen" but fails to mention anything about its near-total dependence upon taxpayer-funded student loans for its income. Added to that, the editorial neglected to make any comment about the specifics of the WASC turndown. No, it just expresses confidence that the management will deal with whatever issues exist, and continue to grow. What claptrap!

I have not read that editorial. It's a good thing I didn't read it right after breakfast. Upon arriving, Manchester and Lynch said the paper would be a cheerleader for local business. San Diego happens to be one of the scam capitals of the U.S. The paper continues to cheer for the scamsters -- not just companies like Bridgepoint, but downtown boosters who want to use taxpayer money to subsidize the billionaire Spanos family for a downtown football stadium. The U-T under this management is simply pathetic, and an embarrassment to San Diego. I will make a new post above about the recent insider selling at Bridgepoint. Best, Don Bauder

That kind of "cheer leading" will doom the paper, drive it into complete BK.

Mark my words, the print industry from the 1800's until 15 years ago was a one party show-today you have INDIVIDUAL BLOGS and numerous media websites that turned that one man show into a million man show. No more monopoly on local news/all news with the Internet.

The daily paper monoplo party is over, Papa Man better learn that real fast.

I got around to reading the Union-Tribune's Bridgepoint editorial of today (July 16). I howled with laughter. The gist was that U-T top execs are friendly with Bridgepoint top execs and are therefore confident that the company will overcome its problems. Hmmm. Best, Don Bauder

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