Shorts target for profit education
It has been some time since we have discussed the short selling in America’s listed education sector. This time last year there was news flow galore surrounding various famous hedge funds going on record to predict the demise of these firms due to their unsound business models. The thesis goes like this: many people paying for this type of education are relying on subsidies that will not last and many will struggle to pay back their loans once they graduate. Fast forward to today and it looks like plenty of investors remain skeptical towards companies like ITT Educational Services (NYSE:ITT), Corinthian Colleges (NASDAQ:COCO), Strayer Education (NASDAQ:STRA), Bridgepoint Educational Inc (NYSE:BPI) and The Washington Post Company (NYSE:WPO). And yet, some of these firms have seen their share prices rise recently and are buying back their shares.
What drew my eye again to this sector was seeing ITT Education appearing in our list of firms hitting a fresh short interest 52 week high. It stands at 22% of all shares and has been rising despite the shares rebounding after having beat earnings expectations in April. Clearly, there is strong conviction from some that ETI is overvalued.
Other names of interest in the Bloomberg Relative Value screen are Corinthian Colleges. While this company does see short interest at an annual high, the percentage of shares out on loan remains an enormous 30% of all shares in issue. Back in January, it ballooned to close to 40% and yet, this had little impact on the share price which has remained at around USD 4 for some time. With volume drying up it seems that everyone is in ‘wait and see mode’.
Strayer Education is the third biggest short in the sector at 18%, having come down from 26% since late April. The share price is trending downwards. Bridgepoint Education is the next on this list with 10% of its shares short, having reduced from 13% very recently. A USD 75 share buy- back was announced on May 3rd.
The Washington Post Company does not appear in the Bloomberg Relative Value screen as it is listed amongst media stocks. However, it’s a favorite amongst short sellers because it owns the Kaplan education business, where the company expects profits to decline “very substantially” this year. With 11% of the total shares out on loan, demand to borrow the stock remains close to annual highs.
Bottom Line: The chart below shows that the combined market capitalization of the four companies has halved within the space of a year to only USD 1.6 billion, meaning short sellers have most definitely called this situation right. The question is how much further the shares will decline? The recent rise in short selling suggests people feel they have not hit the bottom.
