Why Chinese education stocks rebounded higher today

What happened

The stock markets are barely in the green on Wednesday, but you’re going to be shocked when you hear the names of three of the greenest symbols of all:

As of 3:10 p.m. ET Wednesday, stocks hit hard Chinese educational actions New oriental education (NYSE: EDU), Gaotu Techedu (NYSE: GOTU), and NLP Education (NYSE: TAL) are booming – up 8.3%, 12.2% and 13.7%, respectively.

Image source: Getty Images.

So what

Why is this surprising? Well, not to stress it too much, but these three actions are kind of a disaster right now. Since the Chinese government announced its crackdown on the for-profit education sector Last summer, New Oriental, Gaotu and TAL were also scrapped. And last week Securities and Exchange Commission announcement that it is serious to delist Chinese stocks that are not clear about their financial information certainly did not help matters.

How severe has the damage become? This should give you an idea: Over the past 52 weeks, New Oriental stocks have lost 87.5% of their market cap. TAL stock is down 93%. Gaotu is down 96.6% in 52 weeks.

Now what

Oddly enough, there doesn’t even seem to be any good news behind today’s rally in stock prices. Instead, it feels like a “bottom fishing” expedition – and to some extent, it almost makes sense.

Consider: With Gaotu’s stock, for example, shrunk to just one twenty-ninth of its previous size, the company now has a market cap of just $ 630 million – less than the net cash on its balance sheet (which is $ 646 million, by the way, according to data from S&P Global Market Intelligence.) Same story with New Oriental Education, which has a market cap of $ 3.6 billion, but $ 4.1 billion in net cash.

TAL looks relatively less like a good deal – market cap of $ 3.6 billion, net cash of $ 1.8 billion – but even that looks cheap enough. Unless, of course, the Chinese government continues in the direction it is heading and intends to kick these three companies out of business.

In fact, it’s the only thing stopping me from buying a few stocks myself – the nagging worry whatsoever precisely what the chinese government intends to do.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends the New Oriental Education & Technology Group and the 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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