Whitney Tilson is back hammering away at K12, Inc. (NYSE:LRN), below is his latest sent to ValueWalk via email. See more from Tilson on the company here and here.
I just posted an article on Seeking Alpha, An Analysis of K12 and Why It Is My Largest Short Position (attached and posted at: seekingalpha.com). It has a link to an updated version of my presentation (www.tilsonfunds.com/K12-Tilson-9-17-13.pdf) – I’ve added 13 slides to what I presented last Tuesday, with lots of interesting new material.
As I hoped, by publicizing my analysis and critique of K12, a number of people who know the company well have contacted me. Suffice it to say that when I gave my presentation last Tuesday, I was 99% certain that my assessment of K12 was correct, but after hearing from them, I’m now 100% certain.
Their overall feedback can be summarized as:
1) Everything in my presentation is correct, but;
2) K12’s bad acts and the harm it’s doing to students are even worse than I documented.
Here are quotes from people I’ve spoken with just this week:
• “I met with Ron Packard years ago and could tell his motivations had little to do with kids, everything to do with manipulating state regulation to protect his interests. I started digging into the results, the business model, the organization, and discovered much of what you lay out in detail in your presentation. As I said, they are terrible and epitomize everything that we should be working against in the ed-reform movement.”
• “You’re totally right about K12 and, on top of it, they lie all the time. It’s naïve to trust anything they say. So I’m not sure if their schools can be fixed, at least under the company’s current leadership. There’s no such thing as a successful online school in the entire country. To be sure, it works well for some students, but I’d guess only 15% of the ones cyber charters are currently serving.”
• “I know the company very well and your presentation rings true. They have a well-deserved terrible reputation.”
(Note that my critique is not of all for-profit charter schools or regular schools that incorporate some online learning programs like Khan Academy. Rather, it’s of 100% online charter schools, in which students are supposedly learning by sitting at home all day in front of a computer, interacting with teachers almost exclusively online.)
Lastly, my presentation made Barron’s this weekend. Here’s an excerpt (full article below):
Whitney Tilson offered the K12 short recommendation
Whitney Tilson of Kase Capital offered the K12 short recommendation and said this is one of the three best times to short stocks in the past 15 years—the others were 1999-2000 and 2007-08—given large numbers of richly priced issues. He urged caution, however, because “stupidly overvalued stocks can become even more stupidly overvalued.” That happened most conspicuously in the parabolic run-up to the Nasdaq’s March 2000 peak…
…TILSON OF KASE CAPITAL outlined the bear case for K12, an operator of online charter schools for kids from kindergarten through high school. He said that K12 has “dismal academic results” and high dropout rates, while trading at a very high valuation. The shares, at about $34, trade for 35 times next year’s projected profits.
K12 is enrolling too many troubled students, including dropouts: Tilson
Calling himself a “champion of charter schools,” Tilson said K12 is enrolling too many troubled students, including dropouts, who don’t do well with online schooling. “If you have a pulse, they will take you” as a student, Tilson asserts, adding that a backlash is brewing against K12 in many states, which is testing the company’s formidable political lobbying clout.
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