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.
More like this:
- Absence of rationality no argument — Oct. 21, 2014
- Reports: Rural/Metro ambulance service near bankruptcy — Aug. 3, 2013
- Senate Committee Lashes Bridgepoint Education — July 30, 2012
- Bridgepoint's Ashford Denied Accreditation; Stock Plummets — July 9, 2012
- Bridgepoint's Major Shareholder to Sell; Stock Down — July 25, 2011