We have traded Apollo Group (APOL, $18.57, down $2.37) for a few years now and we have been warning of the pending student-debt bubble that will hit the U.S. over the next few years. The problem for this for-profit school is simple. They are a waste of money and their graduation rates and job placement services suck. Enrollments and new students dropped mid double-digits for the third-straight quarter and 2 analysts downgraded the stock on last night’s news.
The company could also get slapped with a “draft report” from its accreditor, the Higher Learning Commission, which means Apollo Group may not meet the “Criteria for Accreditation” guidelines and this would require follow-up reports and action. Not good.
Apollo Group reported a profit of $133.5 million, or $1.18 a share, on revenues of $1.06 billion. The suit-and-ties were looking for $0.90 a share on $1.03 billion in revenues. The problem was their outlook that came up short of expectations.
All many of the for-profit colleges care about is getting government funded loans from the students to pad their pockets and many of them have or still use “Boiler Room” practices to get signups (great movie by the way…). We have targeted Apollo Group as our favorite way to play the downside in this sector and we have used put options to place our bets in the past on the stock going to the mid-teens.
Shares had been holding $20 after testing 52-week lows so we were a little hesitant to recommend put options on the stock given the recent uptrend. We should have stuck with our gut.
The Apollo Group January 20 puts (APOL130119P00020000, $1.47, up $0.63) are up 75% today and it would have been a great 24-hour trade. We touched on Apollo’s earnings in the video update we did Sunday night and we should have profiled these puts for you but we were a little nervous to open an earnings trade because we did feel like they would beat an already lowered earnings bar.
This is still a story to watch going forward and over the past few weeks we have seen many “bullish” cases for the stock. We still have a bearish stance and a mid-teen target of $15 for Apollo Group but we have said shares could trade to single-digits in 2013. The 52-week low is $18.36 and shares have kissed a low of $18.52 today.
As far as the market, the bulls are pushing last week’s highs and could be regaining the momentum as we head into the second half of trading and the back half of the week.
The Dow is up 73 points to 13,401 while the S&P 500 is higher by 5 points to 1,462. The Nasdaq is advancing 16 points to 3,107.
We are getting some nice pin action today with our current trades so let’s go check the tape. Subscribers, hit the Members Area for the updates and we will be back in the morning with our next report.