Back To School Season: Are Education Stocks Worth Shorting?

By: Wayne Duggan

It’s that time of year again when parents and students start gearing up to go back to school.

While this season has been mostly positive for many school suppliers and clothing retailers in recent years, it hasn’t been so kind to a number of education-related stocks.

Since 2009, the S&P 500 has traded mostly flat during August and September, generating an overall return of 0.07 percent. However, each of these education-related stocks has left shareholders longing for a return to summer vacation.

Apollo Education Group Inc (NASDAQ: APOL): Apollo provides private education services via the University of Phoenix and other segments. Since 2009, the stock has averaged a 0.5 percent overall decline in August and September.

Capella Education Co (NASDAQ: CPLA): Capella offers more than 1,740 postsecondary courses and 43 academic programs online. Back to school season has not been kind to Capella’s shareholders — the stock has averaged a 1.4 percent drop.

DeVry Education Group Inc (NYSE: DV): DeVry is a global provider of educational services and has segments that focus on medicine and health, professional education, and business and technology. The stock has struggled during back to school season, producing an overall average negative return of 2.9 percent.

Bridgepoint Education Inc (NYSE: BPI): Bridgeport provides postsecondary education via its Ashford University and University of the Rockies institutes. While students have been headed back to the classroom, Bridgeport’s stock has been headed to the cellar in August and September, averaging a 9.4 percent decline.

Career Education Corp (NASDAQ: CECO): Career Education operates educational institutions such as Colorado Technical University and American InterContinental University. The stock has severely lagged the market during back to school season and has produced an overall negative return of 11.0 percent during August and September.

Strayer Education Inc (NASDAQ: STRA): Subsidiary Strayer University provides post-secondary education for working adults in the U.S. Unfortunately, Strayer’s stock gets a failing grade for back to school season—it’s averaging a 12.7 percent decline.

Rosetta Stone Inc (NYSE: RST): Rosetta Stone produces language-learning and literacy software and learning tools. Shareholders can use these tools to learn how to say “nosedive” in a number of different languages, as the stock has averaged a 13.6 percent decline during back to school season.

ITT Educational Services Inc (NYSE: ESI): ITT provides post-secondary degree programs and short-term IT professional training. However, the company hasn’t learned the secret to higher share prices during back to school season. The stock has averaged a 17.1 percent decline.

Lincoln Educational Services Corp (NASDAQ: LINC): Lincoln provides degree programs in automotive technology, health sciences, skilled trades, hospitality services and information technology. The biggest back to school decliner in this basket, Lincoln shareholders have endured massive back to school declines of 28.9 percent in 2013, 32.9 percent in 2010 and 53.9 percent in 2011. Overall, the stock has averaged a whopping 21.4 percent decline in August and September.

How To Play It

An equal short position in all of the stocks mentioned above would have produced an average annual gain of 10.0 percent during each August and September since 2009. Not only is that an outperformance (vs. the S&P 500) of nearly 10 percentage points in two months, but it also represents an incredible annualized return of 60 percent.

It’s also worth noting that many of these stocks’ woes have not been confined to back to school season. Lincoln, Rosetta Stone, Strayer and ITT have all experienced overall declines in share price of more than 75 percent since August 1, 2009.

For those looking to go long on school supply and clothing retailers this back to school season with the S&P 500 near all-time highs, pairing that trade with a short position in several of these education stocks might be one way to hedge against an unexpected market pullback.

Disclosure: the author holds no positions in any of the stocks mentioned.

Lime Brokerage LLC is not affiliated with these service providers. Data, information, and material (“content”) is provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lime Brokerage LLC does not endorse, offer or recommend any of the services provided by any of the above service providers and any service used to execute any trading strategies are solely based on the independent analysis of the user.

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