Thursday, May 28, 2015

Strayer Returns

It was with a heavy heart that I sold Strayer a few months ago when its price leaped into the $70 area. But the market gods have seen fit to return this company to my portfolio, as the stock is down almost 40% over the last six months! I've written about Strayer before as a stock idea, and not much has changed so I'll just add a few quick points to supplement the old article and bring it up to date.

This best-of-breed for-profit educator generated $70 million in free cash flow last year, against a current market cap of just $500 million. The company quickly shifted from a net debt to a net cash position which currently stands at $70 million.

It looks to me as though Mr. Market is heavily fixated on the number of new students the company enrolls every quarter. This leads to strong negative price action when the new student numbers are down or flat, and strong positive price action when they are up. In my opinion, there is a lot of noise in these short-term numbers, so one can take advantage of the price volatility offered up by the market. I'm also not too concerned about how fast this company can grow revenue, because at this cash flow yield I don't think you need growth to make money.

One thing I don't quite understand is the company's recent reluctance to buy back shares. With the net cash position, the beaten up share price, and the lack of investment opportunities within the business, I would think they should at least be nibbling on shares. On the other hand, perhaps they soon will and this will act as a catalyst for the stock.

Good luck!

3 comments:

Anonymous said...

I don't know how to differentiate amongst these players. What makes strayer best in breed vs comps? Any thoughts on Bridgepoint? I'm guessing recent bankruptcy filing of Corinthian has scared the market away from the space, justifiably or not. Have all of the regulatory issues been fully realized?

Hugo Roque said...

Hi Saj,

Is there any pending regulatory decisions in this industry?

Thanks,
Hugo Roque

Michael Wu said...

Based on an old conference call, Silberman admitted that he wasn't doing great at buying back shares(paid a too high price, I guess). Now first, the net cash it has is not huge, I guess he want to accumulate more to be more safe first. Secondly, I feel it is also possible to be used on acquisition or new campus. Also they may declare dividend instead as mentioned in that conference call.

BTW. I did almost the same thing as yours. Sold at the $70s and bought back at $50s.

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