You are 100 percent right, but the one thing that is killing this stock is The Obama Administration hates for profit education.
There are many articles in the web from creditable sites pointing out that Obama wants to further cut for profit education funding.
The Administration point to a 2010 study that found the for profit education as a whole spent 27 percent of revenue on marketing and recruiting, while just 17 percent of revenue on actual education. As well as high loan default rates. ITT currently has the highest default rate in the industry.
Add on declining enrollment and revenue along with a industry that has a horrible reputation among students "it's customers" and I think that this stock and the industry still has further to fall.
The industry is predominantly a scam. You could write a book about all of the headwinds this industry faces. I get all of that, but at some point the stock falls to a level where there is value.
I don't see how ESI can reasonably go too much lower. The market cap is below TTM EBITDA, Forward P/E is a little above 2.0x. Heck, if you add up the real estate, buildings and cash on the company's 9/30/12 balance sheet, it's 340 million of value, or 85% of the company's current market capitalization. The balance sheet is clean with minimal debt. They could do a sale leaseback transaction tomorrow, get the cash and buy back 20 pct of the company. It'd be easy to do and they're allowed to do up to a 100 million sale leaseback.
It won't happen, but tomorrow the Board could say, "Screw it. Let's max out our 325 million revolver and use proceeds to buy back half the company." It could do it and still stay in compliance with its leverage covenants.
Rather than leverage its balance sheet, it's better off to just get a deal with third party lenders, start generating cash and buy back shares. Earnings may be down 20 pct next year, but the company could easily buy back 30-40% the company next year with internally generated cash flows (at current valuations) and have EPS increase substantially just through the reduction in shares outstanding.
This stock is heavily shorted. Short interest is greater than 50%. I understand the short story, but at these valuations it just doesn't make much sense anymore if the Board is going to act in the interest of shareholders, which it has done before.
The chart shows some pretty clear support at 17/share, which has been tested numerous times over the last two months. The Board could do the right thing in January and cause a massive short-covering rally.