by David Safier
The stock, LRN, was at almost 25 in early July, dipped to 17 by the end of the month, then went on a mild rollercoaster ride until last Friday when it ended just above 20. Monday it started at 19 and ended at 16. Compare all that to April, 2011, when it reached a high of 39.
Why the sudden drop?
Wells Fargo initiated a stock downgrade for K12 Inc. from Outperform to the neutral ranking of Market Perform Monday citing issues at Colorado Virtual Academy.
COVA has a graduation rate of 22%, not a good sign of academic health. Wells Fargo calls the school's performance the "latest example of K12's declining academic performance."
As I've posted on BfA and others have written across the nation, the K12 Inc. model has been flawed from the beginning. The corporation emphasizes recruitment and growth over quality, which means it works hard to pull in students without being concerned about whether they are capable of performing well sitting at home in front of a computer under parental -- or no -- supervision. Its students are notorious for low achievement, and the "churn rate" -- the number of students who leave each year -- is ridiculously high. The Colorado school has received well-deserved bad press from local media.
K12 Inc. claims it's on top of this, but its stockholders obviously aren't convinced. Colorado isn't an isolated example of the for-profit corporation's problems. Stockholders are suing K12 Inc. over inflated achievement numbers coming out of its Pennsylvania schools, and problems are brewing in Florida. Meanwhile, here at home, Arizona Virtual Academy is on academic probation with the state.