Does Apollo Group’s Big Drop Present a Buying Opportunity?

With shares of Apollo Group Inc. (NASDAQ:APOL) trading at around $19.33, is APOL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

earnings-header-cleanApollo Group has been heading in the wrong direction for a couple of years. And it doesn’t look as though things are going to get better anytime soon. After posting earnings results after the bell yesterday, the stock initially popped, but it dropped 7.76 percent today because of lower guidance given during the conference call last night.

Revenue came in at $1.06 billion, and EPS came in at $1.22. Both beat estimates. Revenue was expected to come in a $1.03 billion, and EPS was expected to come in at $0.90. In regards to guidance, revenue expectations for 2013 are now between $3.65 billion and $3.75 billion. This is slightly lower than the original expectation of $3.65 billion and $3.75 billion.

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Apollo Group’s enrollments have dropped over 30 percent since 2010. The company plans on focusing more on new enrollments, but turning this story around will take a lot more than just focus. Challenges include increased marketing expenses, tuition freezes, and increased grant programs. On the positive side, restructuring is expected to save Apollo Group $300 million over the next three years.

Let’s take a look at some important numbers for Apollo Group.

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio and balance sheet for Apollo Group are both strong.  

Debt-To-Equity

Cash

Long-Term Debt

APOL

0.78

$1.28 Billion

$719.91 Million

DV

0.00

$254.86 Million

$0

ESI

1.06

$175.18 Million

$140.00 Million

 

T = Technicals on the Stock Chart Are Poor

Apollo Group, along with DeVry (NYSE:DV) and ITT Educational Services Inc. (NYSE:ESI) have all performed very poorly over the past three years.

1 Month

Year-To-Date

1 Year

3 Year

APOL

-4.24%

-7.67%

-65.99%

-68.07%

DV

-9.86%

1.16%

-41.17%

-56.35%

ESI

-23.92%

-16.58%

-77.44%

-85.57%

 

At $19.33, Apollo Group is currently trading below all its averages.

50-Day SMA

20.15

100-Day SMA

23.91

200-Day SMA

28.69

 

E = Earnings and Revenue Have Been Inconsistent

Revenue peaked in 2010. EPS peaked in 2011.

2008

2009

2010

2011

2012

Revenue ($)in billions

3.13

3.95

4.91

4.71

4.25

Diluted EPS ($)

2.87

3.75

3.62

4.04

3.45

 

We already know what happened this quarter. Let’s take a look at previous quarters as well.

8/2011

11/2011

2/2012

5/2012

8/2012

Revenue ($)in billions

1.10

1.18

969.55M

1.13

974.29M

Diluted EPS ($)

1.37

1.14

0.51

1.13

0.67

 

T = Trends Do Not Support the Industry

Enrollments are down across the board. This trend is likely to continue throughout the industry. There is no catalyst for improvement.

Conclusion

Apollo Group has many negatives at the moment, which include lower guidance, a steadily decreasing profit margin, a weak industry, and poor stock performance. You can also throw in a recent removal from the NASDAQ 100.

There would be no good reason to invest in Apollo Group at the moment. And if you can find a good reason, then it can be outweighed by several more important negatives.

Apollo Group is currently a STAY AWAY.

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