Bridgepoint Education (NYSE:BPI)

Solid financials, got busted for regulatory issues and changing landscape of commercial education but well positioned going forward

Where are the jobs?

Net cash position (including investments) of $515 million, which implies $9.51 of cash per share. The main raincloud over this stock is Ashford University losing its accreditation, which accounts for 96% of Bridgepoint's revenues. Though I do not claim to predict the outcome of this situation, the stock is worth at least $18 even if enrollment at Ashford is more than cut in half. At a price of $10.47 this stock is such a bargain that there is a large margin of safety: the "worst-case" scenario of Ashford losing its accreditation means that revenues may slowly decline for a few years then fall precipitously (assuming management does absolutely nothing), but with the current cash position, Bridgepoint's stock is already massively depressed. The risk-reward on this one is quite favorable.

The feds are on to this scam of an industry....

Provider of education over the internet. The world is looking for education that is easily accessed and can be affordable.

The price is ridiculously low relative to earnings, the balance sheet, and past earnings growth. OTOH there are a bajillion law firms piling on with class action lawsuits against them relating to their alleged concealment of problems with accreditation prior to the July 6 denial of accreditation of one of their schools. Lack of accreditation will block federal student aid. This will have a large negative impact on revenue and probably wipe out their earnings for a while. But probably the accreditation hurdle is a temporary setback but it's not really that hard to get accredited. This company is completely debt-free with price to tangible book of 1.25 and price to cash of 1.75, with a ginormous pretax profit margin before this fiasco, so they would have a good chance of a successful turnaround. OTOH there's a crapload of insider selling. I wouldn't invest in it because there are better ideas, but on balance it's probably an outperform.

Stock market overreacted to delay in accreditation on the west coast. Any news of improvement on the accreditation status will improve the price.

Kids need jobs. Degree job % > non-degree %. Employers do not check the accreditation of colleges. Unfairly punished. Outperforming its current price by far.

“From a strictly business perspective, this is a highly successful model. But, I must say, from an educational perspective – and, frankly, from an ethical perspective – it is deeply disturbing model.” Tom Harkin, Iowa Senator

The $64,000 question surrounding Bridgepoint Education is whether Ashford University maintains its accreditation with the Higher Learning Commission (HLC). After careful analysis, it seems that Bridgepoint is more likely to lose accreditation than it is to keep it. The HLC is looking for three things: evidence of autonomy between Ashford and Bridgepoint; evidence that Bridgepoint primarily spends dollars on education; and evidence that Ashford is a legitimate educational institution. I find none of these three things to be true. When the student-faculty ratio is 585:1, that is bad even for an online school, yet Bridgepoint is looking for 500 new recruiters, not teachers. Bridgepoint does not even provide job placement, which is a requirement for federal funds under the Higher Education Commission. Even some of the programs are not properly accredited. The teaching program, for instance, is accredited only in Arizona and not Iowa. Most students end up with more debt and no job prospects. It costs more in tuition to get a business undergraduate degree from Ashford than the University of Iowa, and most students do not even complete a degree at Ashford (85 percent dropout rate for an associate’s degree is really sad).

While the balance sheet is outstanding, I am not sure how long the gravy train can continue. The insiders continue selling even as the CEO and CFO stopped their trading plans due to upcoming lawsuits. There have been 42 insider trades in the last 6 months, all sells. Warburg Pincus, the PE firm that helped Bridgepoint go public, also is looking for the exits. With over $6 in cash and no debt, I am not sure how much lower BPI can go, but I don’t want to be left holding the bag when the music stops.

losing accreditation pos going to zero

They will get new or maintain old accreditation.

They cannot afford to lose accreditation and once it is solid, the market will restore its price.

I'm doubling down. If they achieve accreditation then my gain will be greater than my loss if they dont.

A better company than any of the others in its sector, and recent downtrend from bad news presents an excellent buying opportunity.

Simply put, they are oversold. BPI will not allow their accreditation to be revoked, without it they go out of business. At the moment the news is horrible, but the selloff has literally brought them down to little more than their cash. It simply doesn't make sense.

"The HLC has asked Ashford University to prove that it has an effective way to monitor student learning and outcomes. It has also been asked to establish its autonomy from Bridgepoint, and prove that it spends sufficient money on student retention and education."

The Higher Learning Commission has to have some credibility itself or it's going to be viewed as a sham commission. If you read above what the HLC is asking Ashford to do, I come to the conclusion that it won't be difficult or expensive to comply with HLC's requests. They don't want to put Ashford out of business, they just want them to shape up a bit. Ashford may contribute a little less to BPI's profits but at this point BPI is trading at a PE of less than 4 with NO debt and $327 million in cash!! With 50 million shares outstanding, BPI has a cash position equal to $6.25 per share. Remember too that they have a share repurchase program in place and are likely repurchasing shares as we speak. If they get a feeling that HLC will continue their accreditation, expect this share repurchase program to be accelerated.

I have ALOT of money in this stock do you think it will recover soon?

short term play

Missing an accreditation is a great big blot on their copy book. They won't recover soon.