- The stock price of TAL Education Group (NYSE: TAL) increased by over 20% during intraday trading. This is why it happened.
The stock price of TAL Education Group (NYSE: TAL) increased by over 20% during intraday trading. Investors are responding positively to reports that China-based private education companies are moving quickly to overhaul their business operations in order to adjust to the government’s crackdown on the sector.
According to sources with Bloomberg, several names in the sector reached out to investors that their businesses will remain viable despite the government’s decision to crackdown on the sector. For example, Yuanfudao — a well-funded education startup backed by Tencent and DST Global — is planning to pull all advertising. However, the company has enough cash to maintain its business operations.
In an internal meeting, TAL Education Group President Bai Yunfeng reported told management that the company is not in danger of failing. But the company will have to make radical adjustments. For example, the company is considering offering after-school courses for free and would create self-study online courses according to Bloomberg’s sources.
The Chinese government said it is going to prohibit companies that are teaching school subjects from making profits and raising capital on markets from foreign investors or going public. And for the longer term, investors are also preparing for worst-case scenarios like delistings or the spinning off of K-9 businesses.
There is another reason why the stock price could be going up. The Motley Fool pointed out that the bad news could now be baked into the stock prices of the companies in the sector since there was a major sell-off over the past week. And as a result, short-sellers appear to be closing their short positions and profiting. This could drive the share prices up in the short term, but there could be a further sell-off shortly after.
Disclaimer: This content is intended for informational purposes. Before making any investment, you should do your own analysis.