what happened
In a strange development, shares of three of China’s most famous public education stocks – TAL Education Group (NYSE: TAL), New Oriental Education (NYSE: EDU), and GSX Techedu (NYSE: GSX) – they are falling today. As of midday EDT on Friday, TAL stock is down 17.7%, New Oriental is down 20.4%, and GSX is down even worse – 21.4%.
The question is: Why?
Image source: Getty Images.
so what
To find the answer you need to go back in time within two weeks when news started leaking out on Bloomberg regarding Chinese authorities conducting snap inspections of after-school training centers.
In an undeniable denial, New Oriental issued a statement at the time telling Bloomberg that it had “no comments on the recent media report,” they noted on TheFly.com. But earlier this week Citigroup analysts caught the wind of the story and lowered New Oriental’s Peer TAL Education, removing their “buy” rating and cutting its target price by $ 20 on that stock to $ 72 allotment.
There has been little new news on the subject since then, with none of the three companies issuing reports, or much in terms of media coverage of what is happening. And shares have held up well without new rumors. For example, New Oriental Education stock has lost only about 5% of its value since the story began to break two weeks ago through yesterday’s close.
Now what
That all changed today, however, with the introduction of an investment bank Jefferies report that China may prohibit the use of online education for students under the age of seven, and may also prohibit online education companies from advertising in Chinese state media.
Without more detail about the new rules – or even an explanation of why they might be applied – it is difficult to say how bad this situation will get. For what it’s worth, Jefferies itself says it doesn’t see much of a similar impact on the companies’ operations.
Nevertheless, in the current atmosphere of uncertainty and lack of access to accurate information (a problem that is all too common when investing in international stocks), there are investors take a “pick up first, ask questions later” approach to Chinese education stocks – and sell them en masse.
This article represents the opinion of the writer, who may not agree with the “official” recommendation position of the Motley Fool chief consulting service. We are motley! Questioning an investment dissertation – even one of our own – helps us to think critically about investing and make decisions that will help us become softer, happier and richer.