K12 (NYSE:LRN)

This company will underperform long term because it seems more interested in cooking the gradebooks than actually educating teachers. Check out this email from the TN virtual academy ordering teachers to gin up better grades for students. http://www.newschannel5.com/category/257004/tennessee-virtual-academy-email

Defenders of the company look at this clear attempt to manipulate grades as some kind of virtue by allegedly grading students on where they are rather than where they have been but they teachers are clearly ordered to give extra work in the later period to allow students to move their grades up, which suggests to me that the idea is to push through a bunch of easy stuff, base the grade on that, and gin up higher scores.

If a public school pulled something this brazen, there would be no end of screaming about crooked teachers, administrators, unions, etc. For some reason, and underperforming for-profit gets a pass plus a pat on the back. But I doubt that lasts forever.

There are too many articles coming out now that show how badly these online schools actually perform, and given the fact that they often cost states MORE per student than traditional schools, it'll be tough to keep up the ruse for long.

http://www.edweek.org/ew/articles/2011/10/05/07enc_virtualachieve.h31.html