Apollo Group

For-profit educator Apollo Group (Nasdaq: APOL) started off its new fiscal year with a bang, reporting a rollicking 17 percent rise in revenue for its first quarter, to $781 million. Free cash flow rose 44 percent year over year to $184 million.

Meanwhile, enrollment rose 11.4 percent. And when you see sales climb faster than enrollment, you know that students are paying higher tuition bills. Indeed, Apollo credited "selective tuition price increases based on geographic areas and programs" for much of its growth.

CEO Brian Mueller has pointed to Apollo's "improved operating efficiencies." Oper- ating margins rose to 28.1 percent. Apollo's bad news concerned "bad debt expense," which increased year over year because of "the continuing trend of changes in the company's enrollment mix to a higher percentage of associate's degree students."

Keep an eye on that trend, because those seeking associate's degrees made up 50 percent of new enrollments at Apollo this quarter. Considering that Mueller also ties this portion of the student body to both "higher write-offs" and a "greater risk of default," it seems Apollo is taking a calculated risk here. These short-term students contribute, on average, 16 percent less revenue per capita than Apollo's average student. Associates are proving to be Apollo's growth engine, but one relatively light on horsepower.