American Public Education: Insider Buying Boosts This Turnaround Stock's Bullishness

seekingalpha09-02

American Public Education has more than tripled in price, as the for-profit educator has so far been successful in turning itself around following an ill-fated acquisition.Even after the big run-up, ...

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American Public Education's (APEI) is turning itself around, after the for-profit education company's value-destroying acquisition of Rasmussen University JHVEPhoto/iStock Editorial via Getty Images After a multi-year slump caused by what one sell-side analyst called a \"value destroying\" acquisition, American Public Education (NASDAQ:APEI) has been bouncing back in a big way over the past twelve months. In fact, during this time frame, APEI stock has handily outperformed other names in the space, with shares more than tripling in value since last September. Chalk this up to a successful turnaround, which has enabled the company to bounce back to consistent profitability, leaving it poised to make further big improvements in operating performance in the months ahead. That said, shares have experienced more choppy performance as of late. Shares briefly tanked last month following APEI's latest earnings release, but in hindsight it's clear that this was an overreaction. Plenty more runway remains, and there's another factor at play (insider buying) that further suggests that the opportunity for strong returns is still on the table, even for investors just considering the stock today. APEI Stock: Background and Backstory Behind its Post-Acquisition Slump Based in Charles Town, WV, APEI owns and operates institutions focused on providing career-based higher education for working adults. Besides its eponymous American Public University, APEI owns the following schools:  American Military University (AMU): AMU is the largest provider of higher education to the U.S. military. Hondros College of Nursing: Hondros is a for-profit nursing school, operates 8 campuses, primarily in Ohio but with locations in Detroit, Michigan and Indianapolis, IN. APEI acquired Hondros in 2013. Graduate School USA: Created by the U.S. Department of Agriculture over 100 years ago, this provider of public service career-focused higher education was privatized in the late 2000s, and acquired by APEI in 2022. Rasmussen University: Rasmussen, the aforementioned \"ill-fated\" acquisition target of APEI, is a provider of nursing and healthcare education.  By-and-large, APEI's acquisitions have helped diversify revenue beyond the educator's legacy business of providing higher learning to military personnel. However, while further diversifying the American Public Education's revenue streams, as Seeking Alpha commentator discussed earlier this year, APEI's purchase of Rasmussen proved \"disastrous,\" not too long after its completion in 2021. In a nutshell, from 2021 to 2023, Rasmussen experienced a steady decline in enrollment, resulting in big losses for this operating segment, not to mention a costly write-down of this acquisition. Not surprisingly, this deterioration in the company's overall operating performance led to APEI stock falling from over $25 per share at the time the Rasmussen deal closed, to as prices just over $4 per share last October: Data by YCharts However, in the months since, a material improvement in American Public Education's fiscal results has produced a tremendous rebound for shares. While very large gains have already been accrued, there's likely still further upside left for new and existing investors. Even After Run-Up, American Public Education Sports a Discounted Valuation Starting in 2023, during the same time that APEI stock was bottoming-out, the company began to implement a much-needed turnaround. By aggressively cutting costs at the Rasmussen segment, while at the time stabilizing its revenue, starting in Q4 2023 this started to result in improved fiscal results for Rasmussen and for the company overall. Already bouncing back ahead of these results, strong Q4 2023 numbers, plus APEI's \"beat and raise\" results for Q1 2024, led to continued strong gains for shares during the first half of 2024: Data by YCharts However, starting in July, shares began to stagnate. Then, in August, APEI's Q2 2024 results elicited a negative reaction from investors, with the stock falling by nearly 28% immediately after the earnings release. The company's revenue and earnings were up on a year-over-year basis, but results fell short of sell-side forecasts. Since earnings, though, APEI has climbed back towards pre-earnings price levels. Taking a closer look, the likely reasons for this are twofold. The Path Back to $25 Per Share and Beyond So, what are the two reasons why APEI stock has quickly bounced back after its post-earnings pullback? First, investors have quickly realized that they overreacted to the reported revenue and earnings miss. Even as the top and bottom-line miss was coupled with a downward revision to FY2024 net income guidance, American Public Education reiterated full-year revenue and adjusted EBITDA guidance. Furthermore, it's not as if American Public Education is priced as if the completion of its turnaround efforts is already baked into its valuation. That is, at current prices, APEI trades for only 12.6 times estimated 2025 earnings, and 11.7 times estimated earnings for 2026. Compare that to shares in other publicly traded for-profit college operators. For instance, Grand Canyon Education (LOPE) trades for 18.1 times and 16.5 times estimated 2025 and 2026 earnings, respectively. Strategic Education (STRA), parent company of Capella University and Strayer University, trades for 20.6 times and 17.2 times estimated 2025 and 2026 earnings, respectively. With this, assuming that the solid execution of American Public Education's turnaround continues, and results meet forecasts, it's not far-fetched to believe that this stock could finally climb back to above $25 per share, or what the stock traded for at the time of the Rasmussen acquisition. A move to even higher prices could be within reach if the company is able to deliver results even stronger than currently forecasted. Alongside the valuation-related factor, the above-mentioned insider buying is also piquing renewed interest in APEI stock. As several commentators on X.com have noted, board member Michael David Braner has been hoovering up shares as of late. According to SEC Form 4 filings compiled by Finviz, since Aug. 8, this insider has increased his personal position from 1.07 million to over 1.9 million shares. While it would be even better if members of the C-suite joined in this post-earnings dip-buying, these transactions do help to assuage any concern that the latest results mark the beginning of the end to the APEI bull case. Execution and Political Risks With APEI Although this stock could soar merely by the company carrying on with its turnaround, and delivering further improvements to operating results in line with expectations, there are of course some risks that may impact the chances that this bull case plays out. Even as further upside may not be fully baked in APEI's valuation, given the intensity of the post-earnings drop for shares, if the company once again falls short of expectations when it next reports quarterly results later this year, more volatility may be in store. If American Public Education has to further walk back expectations about improvements, the stock could enter another extended slump period. After all, while cheap compared to future potential results, relative to current-year earnings, shares are pricey, at a P/E ratio of 36.6. In addition to execution risks, there are also possible regulatory risks with APEI. A recent piece in The Economist dives into how much the results of the upcoming 2024 U.S. Presidential election could have on future regulatory scrutiny of the for-profit education space. If Democratic Party nominee Kamala Harris, who successfully went after for-profit colleges engaging in unlawful practices in her past role as California's Attorney General, wins the White House, this could lead to greater uncertainty about for-profit education stocks, even if an intensified crackdown on the space isn't a top policy priority. I'm not saying APEI and similar names are going to tank like private prison stocks did after President Biden's 2020 electoral victory. I'm also not saying that the company could directly be at risk of regulatory scrutiny. However, it's something worth considering, as this factor may impact near-term price performance. Bottom Line on American Public Education While APEI has tripled in price since last fall, and has delivered more choppy price performance in more recent months, don't assume that the ship has sailed with this turnaround play. Data by YCharts Bouncing back after its August post-earnings hiccup, based on its low valuation compared to future forecasts, as well as heavy insider buying, shares could be en route to re-hit $20 per share, before perhaps climbing back up to $25 per share, or even higher. Although execution risk remains, the risk/return proposition remains favorable. Political risks notwithstanding, consider that while a Democratic Party victory this November could bode badly, the opposite outcome stands to happen if the Republican Party re-takes the White House.  Taking all of this into account, consider APEI stock a buy at current prices.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2464900420"}