“Well, Apollo reports after the bell, and of course this stock has been absolutely on fire. We see it is hitting on all cylinders, I think there’s a good chance here that this stock could probably get right back up into the $80’s… While the markets have dropped roughly 40% over the last year the for profit education business is booming…

The Apollo Group first put chalk on the black board in Phoenix in its flagship school, University of Phoenix, which offers about 120 associates undergraduate and graduate degrees both on-line and in the classroom. During this 80-year learning curve, its focus has stayed the same, an education that works. If you owned a thousand shares of Apollo group stock on march 26th, 1999, they were worth $12,944. Those same 1,000 shares would be worth $77,830 today.

90% of their graduates employed in their field making at least $40,000 six months after graduation. I think that’s a compelling value proposition. Apollo I think is, you know, they are very large obviously, and they are going to continue I think to emphasize the convenience factor of having on-line, but I do think that they are going to be continuing to press forward…” Fox Business Network: Money For Breakfast 3/31/2009

Apollo Group (APOL) has certainly hit its stride during the recession as the stock has been uncorrelated to the market over the last few years.  The stock was generally headed downwards in the years 2004-2006, with the stock bottoming in the low $30’s.  More recently, however, as much of the rest of the market has endured a very rough stretch, Apollo is up more than 80% in just the last year.  Clearly, the largest for-profit educator has benefited from increased demand by the recently unemployed.  As everyone knows, unemployment is worse than any time in the last 28 years.  The company has translated the increased demand for continuing education into substantial revenue gains.  Revenue has grown by 26% over the same period last year as degree enrollment is up more than 20%.  The company netted 77 cents per share, easily beating the Street’s view of 65 cents per share.  The company actually lost 19 cents per share in the quarter a year ago, taking into account charges related to a legal proceeding.

Interestingly, even after Apollo reported these results after the market closed, shares tumbled nearly 6% in after hours trading.  The numbers exceeded analysts consensus estimates for both earnings and revenue, but that apparently did not satisfy the market.  To be fair, the shares have enjoyed quite a run, but its not often that a company reports a quarter like Apollo’s and the stock takes a hit.

At Ockham, we think that the stock is trading in a range that is justified by the fundamentals, and thus we are reaffirming our Fairly Valued stance for APOL shares.  By our methodology the shares would not look cheap anywhere above $71.  After all the stock is receiving a pretty rich valuation from the market, trading at more than 20x expected 2009 earnings.  That is saying quite a bit in this market.  Even though the company is performing well in this environment, it is simply too hot and expectations to high for a value investor to be getting in now.