An unexpected twist in mainstream societal movements to encourage education as a means to success is the influx of capital amongst wealthy American families towards their children’s intellectual development, deepening the opportunity gap between the rich and poor. According to a recent article posted on Yahoo, personal spending habits across the board were significantly curtailed after the financial collapse of 2008. However, for the upper echelons, their money was diverted to education programs for their children, programs that are too costly for average middle-class families. Ironically, the very movement that was initiated to flatten the “competition curve” between the haves and have nots instead has sharpened.
While such a condition has worrying implications for the overall health of society and for the outlook of future generations, what does it mean from an investment perspective? If the studies are accurate, there exists an opportunity for professional training and education centers to make considerable money despite weak macro-economic fundamentals. The reason why centers on profit margin. W
hile most students in undergraduate programs struggle through the financial weight of their chosen curriculum, often being forced into unfavorable debt burdens, students hailing from privileged families have none of these hindrances. They are able to pay on demand, providing education centers with much-needed cash-flow. However, less affluent students are by no means an afterthought, providing capital for both the educating institutions as well as the credit agencies that support their endeavors, for a price. Ultimately, the war between families from opposite sides of the financial dichotomy should be a boon for the “education dealers.”
One investable name that may benefit from a potential surge in this sector is Career Education Corporation (NASD : CECO), which offers career-oriented disciplines through “online, on-ground, and hybrid learning program offerings,” according to their public profile. They are one of the largest for-profit education companies with nearly 55,000 students across the United States. In early May of this year, share prices plummeted under massive volume after poorer-than-expected profitability dominated the discussion surrounding their quarterly report. Career Education was also hampered by operating losses that continued a dubious trend from 2012, partly due to double-digit drop in student enrollment.
Since that intra-day volatility, the price action has generally followed an upward trend channel, with highs and lows bouncing between the current 50 and 200 day moving averages, with the lagging average providing the visual “ceiling” on the chart. Recent trading sessions have been decisively positive, an unusually good sign given the wild bearishness that has overtaken the broad-based indices like the Dow Jones or the S&P 500. This suggests that investors are feeling especially confident with CECO shares, a notion that is confirmed by the upward trending Relative Strength Indicator, or RSI.
Further assurance can be found in the longer term 3-year chart, which shows a consistently upward trajectory following a bottoming of valuation that occurred in April of 2013, a victim of poor financial performances and the resultant sell-offs. Investor sentiment may have gotten ahead of itself during the first-half of 2014, when share prices were challenging the $8 level on multiple occasions. A necessary correction was inevitable, and the aforementioned mediocre earnings report in May was just the ticket weak-handed players needed to bail out.
However, for the smart money, this provides a potential window into a company seriously looking to complete its comeback. With valuations reaching a more sensible condition given Career Education’s mix of hot-and-cold performances, the market has once again offered a good balance between risk and reward.