Shorting K12 Inc. stock

by David Safier

"Seeking Alpha," a company that gives investment advice, is suggesting people "short" K12 Inc. stock, which means it's betting the stock will go down. No corporation wants to hear that kind of talk. Ex-Intel CEO Craig Barrett, who is one of eight members of K12's Board of Directors, should be feeling a little shaky right now. But since he'll never talk about K12 on his own (though he brags about BASIS where he is president and chairman), someone will have to ask him about it.

The long, detailed explanation of the short covers some information I didn't know, and I try to keep up on K12's doings. I knew the corporation is being sued by stockholders for misrepresenting students' learning gains. I posted a few days ago that the corporation is under investigation in Florida for using non-credentialed teachers and putting their students on credentialed teachers' student lists to hide it.

But I didn't know the Georgia Department of Education said Georgia Cyber Academy's special education program was guilty of violations. GCA is a K12 school. While some problems have been corrected, others have yet to be cleared up.

And I especially didn't know the NCAA told K12 Inc. it won't give college students credit for courses offered by K12's Aventa Learning.

Over the past week, the NCAA notified K12 that it will no longer accept credits earned from Aventa Learning, a K12 unit whose internet coursework has been favored by college student-athletes or those prepping for professional debuts, because of concerns over rigor and standards.

It sounds like athletes take fluff courses from Aventa to fill gaps in their transcripts, and the level of rigor is too low even for the usually permissive NCAA to tolerate.

Here's the conclusion of the "Seeking Alpha" piece summing up the reasons for its "short" recommendation:

Conclusion: High student churn, questionable student performance, increased government and state scrutiny, growth via acquisition (non-organic growth), headline risk scaring other states away, state funding issues, poor technicals and questionable practices relating to using non-certified teachers (and covering up the fact). What's not to like as a short-seller? We're talking off the charts risk with this stock and one that deserves a place in an investor's short portfolio.

DISCLAIMER UPDATE: I just want to make it clear, I am not in any way suggesting anyone should short K12 stock. I know very little about investing and would never make any recommendations in that arena. The purpose of this post is simply to point out that the for-profit corporation K12 Inc. has been involved with some questionable educational practices which are serious enough to concern financial investors.