For-profit educator Apollo Group (Nasdaq:APOL) is better known for its University of Phoenix classes that are offered in both and online format and via physical campuses. Apollo is the largest for-profit educator out there, but this has done little to hamper its growth prospects. However, the debt its students take on and murky graduation trends are bigger long-term worries for this company; the firm is addressing these issues, but they may be impacting its stock.

IN PICTURES: 6 Ways To Fund A College Education

Third Quarter Sales and Profit Trends
Revenue grew a very robust 27.7% to $1.3 billion on the back of a 13.3% increase in enrolled students and the acquisition of a U.K.-based legal and financial industry education provider. Most of the company's top line stemmed from students pursuing associates and bachelor's degrees, with approximately 20% seeking either masters' or doctoral degrees.

Reported cost growth far exceeded the top-line increase. This was largely the result of a rather large estimated legal expense stemming from a class action lawsuit in relation to a dispute over how Apollo compensates enrollment counselors. This and a larger goodwill impairment charge sent expenses up 47% to just over $1 billion.

Net income fell 11% to $179.3 million, which was still a very healthy 13.4% of revenue. Share buybacks reduced the hit to earnings, which ended up falling 6% to $1.18 per diluted share. Excluding the charges above, earnings came in ahead of analyst expectations.

For the full year, analysts expect Apollo to grow revenue 23.3% to $4.9 billion. Earnings should exceed $5 per share and grow approximately 20%.

The Competition
With a current market capitalization exceeding $6.5 billion, Apollo Group is a strong competitor with other educational companies such as ITT Education (NYSE:ITT), Strayer Education (Nasdaq:STRA) and Career Education (Nasdaq:CECO). DeVry (NYSE:DV) is the only competitor that comes closest to matching Apollo's market cap.

Bottom Line
Apollo stands out from the competition for its ability to couple rapid growth with impressive profitability. However, its share price has been weak on concerns that its students are taking on too much debt to obtain degrees and too many drop out before completing their education.

At under eight times forward earnings, the stock is more than discounting any further problems the company will encounter regarding graduation rates and the cost of its classes. Graduation rates are less of a concern at more traditional universities, but nearly every post-high school education entity, be it non-profit or for-profit universities, charge increasing dollars per classroom credit hour that hamstring students with significant debt. On the student loan front, Apollo is creating orientation programs to better educate its students on the financial burdens an education can entail. (When federal student loan resources are exhausted, parents and students face tough decisions on how to pay. For more information, see Should Parents Pay For College?)

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