Why Chinese Education Stocks Collapsed Today

What happened

In a curious development, shares of three of China's best-known publicly traded education stocks -- TAL Education Group (NYSE: TAL), New Oriental Education (NYSE: EDU), and GSX Techedu (NYSE: GSX) -- are in freefall today. As of noon EDT on Friday, TAL stock is down 17.7%, New Oriental has fallen 20.4%, and GSX is down worst of all -- 21.4%.

The question is: Why?

Chinese flag superimposed on a stock market chart

Image source: Getty Images.

So what

To find the answer you have to go back in time by a couple of weeks when news began filtering out on Bloomberg regarding Chinese authorities conducting snap inspections of after-school tutoring institutions.

In a non-denial denial, New Oriental issued a statement at the time telling Bloomberg that it had "no comments on the recent media report," noted But earlier this week Citigroup analysts caught wind of the story and they downgraded New Oriental peer TAL Education, removing its "buy" rating and cutting its target price by $20 on that stock to $72 a share.

There's been little new news on the subject since then, with none of the three companies issuing statements, nor much in the way of media reporting on what's happening. And shares have held up pretty well in the absence of new rumors. For example, New Oriental Education stock lost only about 5% of its value since the story began breaking two weeks ago through yesterday's close.

Now what

That all changed today, however, when investment bank Jefferies reported that China may ban the use of online education for students below seven years of age, and may also ban online education companies from advertising in Chinese state-owned media.

In the absence of greater detail on the new regulations -- or even an explanation of why they may be put in place -- it's hard to say quite how serious this situation will get. For what it's worth, Jefferies itself says it sees little likely impact on the companies' operations.

Regardless, in the present atmosphere of confusion and lack of access to accurate information (an all-too-common problem when investing in international stocks), investors are taking a "shoot first, ask questions later" approach to Chinese education stocks -- and selling them en masse.

10 stocks we like better than New Oriental Education & Technology Group
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and New Oriental Education & Technology Group wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of February 24, 2021

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Jefferies Financial Group Inc.. The Motley Fool recommends New Oriental Education & Technology Group and TAL Education Group. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More