Like a teacher who flunks the whole class because a few students may have cheated, Wall Street is punishing the entire profit-making education industry over allegations that will sound familiar to Washington investors.
Three and a half years ago, Manassas-based Computer Learning Centers Inc., accused of abusing federal student loan programs, abruptly filed for bankruptcy and closed, locking out thousands of students. Investors wound up with worthless stock after being assured by the company's executives and industry analysts that allegations of wrongdoing were just plain wrong.
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Playing It Safe In a Sluggish Market (The Washington Post, Jul 12, 2004)
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Big Improvements Were Scattered in Quiet 2nd Quarter (The Washington Post, Jul 5, 2004)
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This time investors are not waiting for the final grade on the three national chains being investigated by the Education Department and the Securities and Exchange Commission. But it is not just those three stocks being punished -- so are other education stocks, including three local companies not involved in the investigations.
Shares of Strayer Education Inc. of Arlington have fallen 28 percent from their spring peak despite the company's better-than-expected performance. Last week, Strayer reported second-quarter revenue grew by more than 25 percent to $46.8 million and net income grew by almost a third to $11.4 million. Two new campuses opened this summer, and another will open this fall.
Also taking a tumble is the stock of Laureate Education Inc., of Baltimore, which, like Strayer, caters to working adults seeking to upgrade their professional skills or obtain advanced degrees. Formerly known as Sylvan Learning Centers, Laureate spun off its kindergarten-through-12th-grade business and now operates colleges in 11 countries and two online universities.
Laureate stock is off about 19 percent this summer. "I think that we have been punished less than our peer group," said the company's investor relations director, Chris Symanoskie. Only about 5 percent of Laureate's students use the federal student loan programs under investigation, he said, while the schools under investigation depend on federal funds to pay the tuition of a majority of their students.
The education-industry sell-off also gets part of the blame for the summer's 11 percent decline in the stock of The Washington Post Co., whose publishing and broadcasting businesses are better known than its education division, Kaplan Inc. Kaplan runs educational ventures including test preparation, career training and an online law school.
Until early this year, education stocks were Wall Street favorites. Dissatisfaction with public schools and pressure to get into colleges creates a strong market for companies serving younger students. The poor job market encourages older people to enroll in career training schools and colleges such as Strayer and to take courses online from schools like Walden University, which is run by Laureate.
But only eight of the 49 education stocks in an index created by Baltimore investment banking firm Legg Mason Inc. rose during July. The industry index was off almost 7 percent for the month and all the higher education stocks were down, many to new lows. The declines continued last week. The worst losses have been inflicted on shareholders of the three chains of schools that are under investigation.
The three companies under investigation all have denied wrongdoing and said they do not expect to lose their accreditation or right to participate in government loan programs.
