Time To Be Greedy!

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I’ve discovered a textbook contrarian trade.  The kind Buffett and Soros would be proud of.  In fact, Soros jumped on this idea a few months ago when the shares were higher.

No doubt about it… you have a golden opportunity.

You can follow in the footsteps of the great George Soros.  And you can do it at a much lower cost.  There’s nothing better than getting the drop on an investing legend.

The company I’m talking about is Bridgepoint Education (BPI).

Bridgepoint is a for-profit provider of post-secondary education services.  They offer associate’s, bachelor’s, master’s, and doctoral degree programs in various fields.  They deliver programs online as well as at traditional campuses in Iowa and Colorado.

As of June 30th, the school had 67,744 students enrolled.

That’s 49% higher than the same time last year.  The recession has helped boost enrollments as many workers forgo a dismal job market in favor of career advancing degrees.

As you probably know, the for-profit education industry is under heavy fire from the government and investors.  A couple of my colleagues have written about it in previous DWR articles.

And the latest news in this saga is potentially catastrophic for most of these companies.

The U.S. Department of Education has proposed regulations that could severely limit federal student aid to certain for-profit schools.  This is very serious because for-profit schools generate about 80% of their revenue from federal student aid.

The DOE is concerned students at for-profit schools are taking on more debt than they can ever repay.  Of course, when students default on their loans, the taxpayers pick up the tab.  (I’m certainly not a fan of this arrangement.)

Under the proposed rules, schools can keep their federal student aid as long as two conditions are met.  Student-loan repayment rates are above 45%.  And student debt-to-income ratios are below 8% of total income.

The proposed rules are stringent to say the least.

A recent DOE analysis shows the vast majority of for-profit schools don’t meet the conditions.  Of course, this is devastating news for many of these companies.

However, four schools passed the test.

And one of them was Bridgepoint.

Despite the good news, shares of Bridgepoint are still badly misvalued.


At a recent price of $13.72, the shares are trading at just 6.9x the 2010 estimate and 5.5x the 2011 estimate.  Those are extremely low P/Es for a company expected to grow earnings 29% a year over the next five years.

Clearly, the shares are pricing in the worst case scenario.

But the DOE analysis shows Bridgepoint is not going to lose their main revenue growth driver… federal student aid.  Once the smoke clears, investors are certain to drive these shares higher.

Take a page from the Buffett/Soros playbook…

Grab your shares of Bridgepoint now while the herd still hates them.  When the crowd turns bullish, you’ll be in perfect position to rake in the profits.

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