Special Situation Investing

Tuesday, November 28, 2006

Apollo (APOL) - Potential Turnaround

I ran into a good stock-pick article containing value/contrarian Jeff Auxier's opinions. In the article, Jeff mentions that he is currently buying Walmart (WMT), Western Union (WU) and Apollo (APOL). Walmart has been coming up in a lot of value discussions ever since Warren Buffet bought into it. Western Union was spun from First Data Corp. and certainly has promise. However, the stock that caught my eye was Apollo.

Apollo runs a number of universities and online education programs for working adults looking to upgrade their education. A former dynamite growth story, it has ran into hard times of late. Enrollment growth has dramatically fallen to ~5% a year, advertising expenditures are far exceeding that level and there have been investigations into stock option grants (who hasn't had these stock option problems lately?) which have resulted in an upper management shakeout. The stock currently trades for roughly half it's 52-week high with a P/E of 14.9.

Jeff's main argument is that Apollo is an industry leader hitting a cyclical downturn. The numbers would generally seem to confirm it's spot in the industry. The company sports profit margins of 17.7% and ROE of 62.97%. There is virtually no long-term debt. Most of it's competitors are also hitting hard times.

The company also may provide certain recession counter-cylicality. In effect, as the economy worsens (if it worsens) jobs become scarcer and people get layed off. Looking for new or better jobs people return to school in greater numbers and companies like Apollo benefit.

At this point I am still investigating the stock. I need to convince myself that the drop in growth rates is actually going to turn around at some point. For those who need fewer reassurances or have more insight into the company this could be a good buying opportunity.

Obviously, I would love to get some feedback on Apollo.


  • They profiled it this morning on CNBC, I can't remember which segment but Erin was doing that "Biggest Losers" segment and some guy was talking about how APOL would be a good turnaround story...sorry, don't remember the details but you can probably look it up.

    By Anonymous Anonymous, at 2:04 PM  

  • Disclaimer: I am long APOL. On the economy/downturn angle, if I remember correctly -- a material portion of their students actually come from employers who are sending their employees back for training. This differentiates them somewhat from some of the other players in the space which are constantly getting investigated by government student loan programs for over-stating the success of their graduates...not that APOL is immune from this. Also, the Democratic win may result in more accessibility to student loans. That would definitely be a positive for APOL.

    By Anonymous Anonymous, at 3:03 PM  

  • I had a look into the type of students that enroll in the company but couldn't find too many stats. According to the IR site, 80% of their students work full-time. There was also mention of financial programs that corporations setup through Apollo but I couldn't find any hard numbers on that.

    Couldn't find the CNBC article on Apollo after a brief search on the MSNBC site. I did find quite a few interesting links to the Apollog landings! If anyone has a link, please post it.

    By Blogger spinoff, at 3:25 PM  

  • Apol students are primarily funded through their employers. Tuition reimbursment. With a down turn in the economy that would mean lay-offs so there would be less not more students attending APOL. However with low unemployment then the number of students should increase. Think positive and the stock should be a winner.

    By Anonymous Anonymous, at 4:11 PM  

  • Enrollment of online students has exceeded the enrollment of classroom students in last couple of years. They seem to have good /repeatable processes and infrastructure. Seems that margins and enrollment (revenue) might continue to increase with online.

    By Anonymous Anonymous, at 4:25 PM  

  • I am a former Apollo employee and would say the management shake up is due to the current strong leadership. The departure of CEO Todd Nelson and the naming of his replacement Brian Muller is a strong positive. Not a type to sit by ideally. Some innovative things are occurring and I am confident will be seeing stronger performance shortly.

    By Anonymous Anonymous, at 1:40 PM  

  • It's true about when the economy is down, APOL doesn't feel it's effect. APOL had one of the great rises in stock history during and economic downturn. Nearly 70% of APOL students use Federal Financial Aid to pay for tuition. Aid that would still be there even in an economic downturn. The previous poster is correct about Mueller. He has kicked up their marketing efforts to include much more than just internet advertising. APOL which already has a strangle hold on the market, will look to squash any copycat competitors in the next few years.

    By Anonymous Anonymous, at 3:46 PM  

  • Interesting post on apollo


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