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Why Chinese Education Stocks Bounced Higher Today

What happened

Stock markets are barely in the green Wednesday, but you're going to be shocked when you hear the names of three of the greenest tickers of all:

As of 3:10 p.m. ET Wednesday, shares of hard-hit Chinese education stocks New Oriental Education (NYSE: EDU), Gaotu Techedu (NYSE: GOTU), and TAL Education (NYSE: TAL) are soaring -- up 8.3%, 12.2%, and 13.7%, respectively.

Image source: Getty Images.

So what

Why is this surprising? Well, not to put too fine a point on it, but all three of these stocks are kind of a disaster right now. Ever since the Chinese government announced its crackdown on the for-profit education industry this past summer, New Oriental, Gaotu, and TAL, too, have been in the dumps. And last week's announcement by the Securities and Exchange Commission that it's serious about delisting Chinese stocks that don't come clean on their financial disclosures certainly didn't help matters.

How bad has the damage gotten? This should give you an idea: Over the past 52 weeks, New Oriental shares have shed 87.5% of their market capitalization. TAL stock is down 93%. Gaotu is down 96.6% in 52 weeks.

Now what

Curiously, there doesn't even seem to be any good news behind today's rally in stock prices. Instead, this looks like a "bottom fishing" expedition -- and to an extent, that almost makes sense.

Consider: With Gaotu stock for example shrunk to just one twenty-ninth of its former size, the company now carries a market capitalization 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 $3.6 billion market capitalization, but $4.1 billion in net cash.

TAL looks like relatively less of a bargain -- $3.6 billion market cap, $1.8 billion net cash -- but even it looks pretty cheap. Unless, of course, the Chinese government continues in the direction it's been heading, and intends to drive all three of these companies clear out of business.

In fact, this is the only thing that's keeping me from buying a few shares myself -- the nagging worry that this is precisely what China's government intends to do.

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


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