K12 Shares Nosedive

K12 Shares Nosedive

Oct 10, 2013

NOT MAKING THE GRADE: Looks like Whitney Tilson, the outspoken hedge fund manager and education reformer who lambasted K12 Inc., may have been right with his forecast. Shares of the company plunged nearly 40% after disclosing numbers that fell short of analyst expectations. (At the time of writing, K12 shares were hovering above $18, down from a 1-year high of $38.14.) Enrollments grew at 5.7%, below the 14.6% that some expected. And the company's anticipated revenue of $905 million to $925 million for the year are short of the expected $962.6 million.

Oddly enough, Tilson, who recently met K12 CEO Ron Packard at a party, says Packard's a great guy. Writes Tilson in his newsletter: "I liked Ron. I found him very personable, I think he honestly believed everything he said to me, he didn’t get angry or defensive when I pushed him on some pretty tough stuff I’ve heard and written about K12." Tilson isn't quite done shorting the stock yet: "I don’t think K12 has come to grips with the reality that it doesn’t just need to slow its growth, but must actually shrink its enrollment--and not by a little, but by a lot--to weed out the students who are not appropriate for a full-time online school and thus are not engaging or succeeding." But if the company takes such steps (and Tilson goes into some detail), the astonishing could happen:

"Once K12 takes these steps, I will cover my short – and might even go long the stock!" Ah, traders. Short today, long tomorrow.

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