Less than two months ago, I discussed Perdoceo (PRDO, Financial) as a potential value idea. Unfortunately, a new risk has arisen which is stopping me from continuing to enjoy the upward momentum.
The Democratic nominee for U.S. President is now discussing tuition-free college as a campaign platform. I have zero interest in having a portfolio company compete with that, and so I recently sold all my shares of Perdoceo.
When I invest in a stock, the most important thing for me is the downside risk. As such, I avoid companies with a lot of debt or where one customer is too important to the company's fortune. One other such risk is political; will the government put the business out of business?
In this case, a lot would have to go wrong for Perdoceo for that to happen. First, Biden would have to win. Then, he would actually have to make it a priority. He would probably also need help from other levels of government. So the odds of this company being materially harmed may not be that high.
But just as a highly-indebted company or one with a significant customer *may* be fine, over the long-term I will pay the price eventually if I don't look after the downside.
The stock is up over 60% over the last two months. Sometimes, if you buy cheap or get lucky with timing, even when (potentially) bad things happen, things can work out!
Disclosure: No position.
