Why TAL Education Group Stock Jumped Today

What happened

Shares of TAL Education Group (NYSE: TAL) were moving higher today after the Chinese K-12 education company turned in better-than-expected revenue growth in its second-quarter earnings report and gave strong top-line guidance for the current quarter, though it posted a surprise loss in the quarter.

As of 3:02 p.m. EDT on Thursday, the stock was up 14%.

A boy looks at a computer in a classroom

Image source: Getty Images.

So what

TAL, which provides K-12 after-school tutoring in China, said revenue jumped 33.8% to $936.6 million, well ahead of analyst estimates at $914.7 million. That growth was driven by a 54.5% increase in student enrollment from a year ago to 3.41 million, and the company expanded its presence to 69 cities across China. 

But TAL spent aggressively to drive that growth as sales and marketing expenses rose 73.5% to $263.3 million, and operating income fell 13.5% to $69.9 million. On the bottom line, adjusted earnings per share fell from $0.13 a year ago to a $0.02 loss. That was significantly worse than expectations of a $0.09 profit.

CFO Rong Luo summed up the quarter, saying, "The second-quarter revenue performance was based on the healthy and broadly distributed growth of our overall small class business across the cities we currently cover and the continued scaling of our online courses."

Now what 

TAL called for revenue growth of 41% to 44% ($826.2 million to $843.8 million), or 45% to 48% in currency-neutral terms. That compares with the analyst consensus at $797.7 million. 

While two straight quarters of surprise losses may be cause for concern, investors tend to excuse losses in high-growth stocks if revenue growth remains strong. As long as TAL can continue to top revenue expectations, investors should be willing to give it the benefit of the doubt on its bottom-line result.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends 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.


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