Is DeVry a good short-term trade?

— -- Q: Do you think DeVry is a good stock to buy and do you feel it will rise for a short-term trade?

A: DeVry dv is giving investors an education in the risk of the stock market.

The company is a large player in the for-profit education industry. For years, especially during the 1990s, for-profit education stocks were giant leaders. These companies were beneficiaries of lenient lending practices from the U.S. government. Students could pay the for-profit schools their tuition fees largely using federal loans.

But over the past few years, the easy loans to students skidded. Regulators have become very concerned about the hefty debt loads many of these students face upon graduation, relative to the salaries they receive. The entire industry has been under pressure as a result. Shares of DeVry have fallen from more than $65 a share in July to roughly $39 a share now.

DeVry, along with most of the industry, is attempting to win back investors by showing its students can succeed. And so far, DeVry is navigating the disruptions to the industry. Revenue in the fourth fiscal quarter that ended on June 30 was up 7.9%, while net income rose 5.1%. While that may not be the stratospheric growth of the past, it's still growth amid a tough time for the industry.

But should you go back to school by adding DeVry stock to your portfolio? To find out, let's put the stock through the four tests considered at Ask Matt, including:

Step 1: Risk vs. reward. When you take a risk on a stock, you want to make sure you're properly rewarded. Downloading DeVry's trading history back to 1992, we see the company generated an annual compound rate of return of 4.9%, including the current dividend yield of 0.6%. That's a poor return if you consider the S&P 500 returned an annualized 7.1% return over the same period, says IFA.com.

And to get that lower-than-average return, you had to take greater risk. You accepted risk — standard deviation — of 38 percentage points. By investing in DeVry you took on 155% more risk to get a 31% higher return. Much greater risk for less return: That's not a great tradeoff and a good reason for long-term investors to bypass DeVry. But you're not asking about the long term, and are curious about speculating in the short term, so it's worth looking at the stock in another way.

Step 2: Measure the stock's discounted cash flow. Some investors decide if a stock is pricey by comparing its current price with the present value of its expected cash flows. It's a complicated analysis made simple with a system from New Constructs.

When we run DeVry's stock, we find it's rated "very attractive." In other words, the current stock price is well below the value of what the company is expected to generate in cash over its lifetime. New Constructs charges for its reports, but a free DeVry report is available to Ask Matt readers. For investors looking for a fundamental reason to buy the stock, this is a good one.

Step 3: Compare the stock's current valuation with its historical range. BetterInvesting's Stock Selection Guide can help. If the company can increase earnings 16% a year the next five years, as analysts forecast, that would put the stock in the "buy" range. This indicates the stock is inexpensive relative to the earnings the company is expected to generate. Again, this is a sign that perhaps investors can see a reason to take a shot on this stock.

Step 4: Check the company's financial health. Before investing in any company, you want to make sure it's in good financial shape. A quick way to check is to look at where it falls on the USA TODAY Stock Meter, which ranks stocks from conservative (1) to aggressive (5). DeVry scores a solid 1.8 here. You can get a Stock Meter score for almost any stock by going to money.usatoday.com and putting the stock's ticker symbol or company name into the Get a Quote box.

The bottom line: Sounds as though you're a gambler looking for a stock to take a wild chance on. You have found an interesting candidate. While DeVry may not be a good choice for long-term investors, on a short-term basis, you could make an argument that investors are overly punishing this stock. When speculating on stocks, though, remember to always cut your losses if they exceed 10% of what you paid. And longer-term investors can do much better with stocks expected to generate adequate returns relative to their risk, which DeVry does not qualify.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz