Why ITT Educational Services Shares Fell

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our thesis.

What: Shares of ITT Educational Services were flunking out today, falling as much as 23%, and finishing down 21% after an underwhelming fourth-quarter earnings report.

So what: The for-profit educator has been particularly volatile during the past year, and that pattern continued as revenue fell 12.6%, to $262.9 million, though that actually beat estimates of $260.9 million. Meanwhile, the company saw its per-share loss grow from -$0.41 to -$0.49, as overall enrollment dropped 5.8%, to 57,542. As a silver lining, new student enrollment ticked up 4.5%, to 13,995, but continuing students fell 8.6%, a sign that dropouts are increasing, and that students are perhaps not finding the school worth their investment.

Now what: The for-profit education industry tends to track as a whole, and the group of stocks has begun to battle back recently after two years of sharp declines. The fourth quarter is generally a weak one for ITT, so the loss should not be so surprising. In its earnings call, management forecast EPS for 2014 of $3.00-$3.65 compared to the analyst average at just $3.11. That range would be better than its 2013 total of $2.52, meaning now could be a good time to invest. Still, I'd like to see student enrollment and revenue numbers moving in the right direction first.