NEW BEARISH Plays
Strayer Education, Inc. - STRA - close: 53.83 change: -0.67
Stop Loss: 56.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 06, 2015
Time Frame: Exit prior STRA's earnings report on May 6th
Average Daily Volume = 124 thousand
New Positions: Yes, see below
Why We Like It:
The for-profit education stocks have not had a good year. The group is getting crushed. Student enrollments are falling as the labor market improves. Last week we saw the March jobs report was a disaster but the prior 12 months were all above +200,000 jobs a month, the best string of job growth in years. The unemployment rate has fallen to six-year lows. This is reducing the number of potential students for companies like STRA.
STRA was founded back in 1892. According to the company, "Strayer Education, Inc. (Nasdaq: STRA) is an education services holding company that owns Strayer University. Strayer's mission is to make higher education achievable for working adults in today's economy. Strayer University is a proprietary institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, health services administration, public administration, and criminal justice to working adult students. Strayer University also offers an executive MBA online and corporate training programs through its Jack Welch Management Institute. The University is committed to providing an education that prepares working adult students for advancement in their careers and professional lives."
Another challenge for the for-profit industry is the U.S. government. Plenty of students are graduating with piles of debt and still can't get a job. Some schools have unusually high dropout rates. The authorities are investigating some schools for predatory enrollment practices. A new challenge is President Obama's proposal to make community college free for everyone, for the first two years. Of course "free" is a relative term since tax payers will be paying for it. No word yet on if or when this proposal gets off the ground but it generates headwinds for the for-profit educators.
STRA has been struggling with falling student enrollments and lower revenue per student. They reported Q4 earnings results on February 6th. STRA's $1.32 per share beat estimates by 14 cents. However, revenues plunged -6.4% to $116.1 million. Their fiscal 2014 earnings were down -7.8% from the prior year. Revenues dropped -11.4% in 2014.
The company is hoping that enrollment trends will turn positive in the first half of 2015 but they don't expect revenues to turn positive until the second half of the year.
Investors are bearish on the stock with short interest at 15% of the very, very small 10.0 million share float. This time the bears are probably right.
Technically STRA looks ugly with a clear trend of lower highs and lower lows. You can see the sell-off on its Q4 report in the daily chart. The weakness accelerated in late March. The point & figure chart is bearish and forecasting at $46.00 target.
We are suggesting bearish positions with an entry trigger at $52.95. Investors will want to keep their position size small to limit risk. The small float and the high short interest could make this stock volatile. I suggest the put option, which would limit your risk to the cost of the option.
Trigger @ $52.95 *small positions to limit risk*
- Suggested Positions -
Short STRA stock @ $52.95
- (or for more adventurous traders, try this option) -
Buy the MAY $50 PUT (STRA150515P50) current ask $2.00
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike