ITT Educational Services, Inc. (NYSE:ESI) is reeling Friday from what could be a final blow. ESI stock fell into penny-stock territory after the Department of Education said it can no longer enroll students with federal loans.
If there was ever a stock screaming to be sold, ITT Tech is it. ESI shares fell more than 60% in early trading to around 64 cents a share. This thing was a do-not-touch micro-cap even before Friday’s selloff.
After the rout, ITT Educational Services’ market cap stands at a laughable $9 million. Investors need to hit the exits before liquidity dries up.
After all, who’s left to buy this dog?
It took a little longer, but ITT Tech was eventually found out for what is is. Like many for-profit colleges, the whole operation was cyclical and shady — at best. Everything from its finances, recruitment tactics and graduation and job placement rates weren’t quite as advertised. Students who borrowed federal money to cover tuition often defaulted on those loans when an ITT Tech degree failed to give them any edge in the job market.
And so, the Education Department was forced to close the valve on its loan pipeline. Secretary of Education John King said in a statement:
“Our responsibility is first and foremost to protect students and taxpayers. Looking at all of the risk factors, it’s clear that we need increased financial protection and that it simply would not be responsible or in the best interest of students to allow ITT to continue enrolling new students who rely on federal student aid funds.”
Don’t Step in ITT Tech (ESI)
It gets better. The department also prohibited ESI from awarding raises or bonuses or making retention and severance payments to its executives. Also, ITT Tech needs to come up with about $150 million in 30 days to increase its existing surety. The money, held by the DoE, will be earmarked for reimbursements if ITT Tech is forced to shutter any campuses.
Current students are allowed to remain enrolled at ESI, apply for federal financial aid, to transfer their credits or take break from their pursuit of higher education. They’re also protected by the possibility that they’ll get their federal loans discharged if ITT Tech closes their campus.
ESI stock was a disaster even before Thursday’s ruling. But it’s hardly alone. Apollo Education Group Inc (NASDAQ:APOL) is off 70% over the past two years. Education Management Corp (OTCMKTS:EDMC) is a penny stock. Corinthian Colleges Inc (OTCMKTS:COCOQ) is kaput.
ITT Tech’s stock had lost more than 45% for the year-to-date. It’s now down close to 85%. And it sure doesn’t look like a good candidate for a rebound play. This is not a “buy on the sound of cannons” situation.
Indeed, if ITT Tech can’t get ESI stock back above a dollar a share pretty soon, the New York Stock Exchange will delist it. At that point, it will become an over-the-counter penny stock, suitable only for speculators and other people who are not serious about their money.
The writing has been on the chalkboard for ESI for a couple of years now. It has lost 99% of its market value from its peak.
Wise investors will continue to ignore ITT Tech and the entire industry of for-profit education stocks.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.