From Indiana U To For Profit Education?

At the Ira Sohn Conference, Sunjay Gorawara, a senior from Indiana University won the stock picking contest out of hundreds of applicants, with his pick, a surprising choice, especially for him. Gorawara chose a competitor to the public education sector, Bridgepoint Education, Inc. BPI, a name that has been very controversial before at Ira Sohn, by Steve Eisman. Michael Price, a Wall Street legend, presented the winner and announced that that were four finalists, General Motors GM and GameStop GME were among the list. Gorawara, who will be an analyst with J.P. Morgan, said that he likes the company because it is growing its revenues at 30%, has gross margins at 74%, 31% of its market capitalization is net cash, and the buyback the company is doing is 22% of the float. In the last quarter, the company blew out analyst estimates, reporting 92 cents per share, versus expected earnings of 59 cents. The typical student is a 35 and female, and is a minority who is working full time. Gorawara looked at online surveys, Facebook, and LinkedIn for feedback on Bridgepoint, and results came back very favorably. He went on to explain the bear case, led most notably by Eisman, and Senator Tom Harkin. The bear case is that the dropout rate is abnormally high, but Gorawara disputes this, saying that the dropout rate for students who complete the first course is 38%, which is quite reasonable, given the high risk demographic. The company's best competitors are black colleges, and community colleges. Bears go on to say that Bridgepoint has poor educational standards, and is accreditation shopping. This is not so, according to Gorawara. It is changing accreditation because the company is based in California, and this is where the accreditation it wants is. Gorawara said his 12 month price target is $47, more than 100% above current levels. 56% of the float is held short, and you are getting a 12% borrow rate. Due to the concentrated ownership of the stock, the public float is really only $360 million. If the company executes the $80 million buyback, as it has stated it will, then 73% of the float would be held short, leading to an eventual short squeeze.