Investors have to be disciplined in this area. Valuations, while ridiculously depressed in 1999 as tech and telecom took off, rebounded to more normalized levels in 2000. We ve already seen triples in many of these stocks, so you need to be disciplined when buying into one of these companies at these higher valuation levels, and try to start new positions on any meaningful dips in the stocks. Something investors need to realize is that many of these companies are service-based organizations. That means that you don t rely necessarily on new technology or new capital equipment to generate growth.
Management is the key.
As an analyst, the most important thing we can do is to make sure that we understand where management is going with the growth and operating strategies of these companies. They have great management, and Wall Street is willing to reward them with a premium valuation, because they consistently lay out a very clear, concise strategy and hit their mark every quarter. So the first and most important factor for us is the quality of management. Second is the regulatory environment, which will continue to be a factor when evaluating postsecondary companies in the industry because it has the tendency to impact the required rate of return from investors in this group. Those issues are still around in the industry and are going to have to be watched closely, although I think they re overblown in certain instances.