Tal Education (TAL) is a Chinese company that provides tutoring services. The price action of TAL has been volatile over the past year, and many are wondering whether this is a good entry point. So what’s the deal with Tal Education? Why did its share price plummet and will Tal stock recover?
The acronym “TAL,” which stands for “Tomorrow Advancing Life”, reflects the company’s vision, as presented by spokespersons, which is “to promote top learning opportunities for Chinese students through both high-quality teaching and content, as well as leading edge application of technology in the education experience.”
As a provider of services from pre-school to the twelfth grade, TAL operates in various class formats with markets in dozens of Chinese cities. Its versatile offerings consist of various brands such as HS Performance, a children’s physical fitness brand, and services in maternity and baby care, secondary education and international student placement.
Why Did Tal Education Stock Fall?
There are a number of reasons for downward price action on Tal Education. In fact, the stock has been on a downhill tear since February. After a high of $90, TAL has sunk to as low as $30 as of press time.
A 33% drop in just several months is enough to worry investors, and that’s just part of the red ink that has had traders cutting losses if they bought in at the peak.
By most accounts, the lower values do not have to do with the leadership of CEO, Zhang Bangxin, who is seen as a visionary leader for the company.
Some analysts are suggesting that regulatory changes early this year, combined with lower spending by households, put a damper on TAL’s business. Like so many other stocks, TAL has come under downward pressure from the Covid-19 virus restrictions of the past year, which might be good news to investors who want it to rebound during 2021.
But there are other potential flies in the ointment that investors need to be aware of before getting too excited about snapping up shares of TAL.
Tal Education Scandal Fallout
Early in April of this year, an internal audit found evidence of what press releases called “employee wrongdoing.” Announcements of audit results showed forged contracts and other shady practices which put some investors off of TAL.
According to reports, sales were artificially inflated using these contracts, which led investors to question the integrity of the management team.
In terms of fallout, TAL stock actually inched up in the immediate aftermath of the news, but subsequently fell a significant amount. After hitting a high of $61 per share April 22, TAL share price moved much lower down to around where the stock now rests.
Tal Education Earnings Snapshot
It’s also important to look at earnings-per-share as a metric that helps tell a story along with the stock chart. As a vehicle of return to investors, EPS tells a lot about what’s happening within a company.
In the case of TAL, we see that earnings-per-share has recently turned negative with an EPS of -$0.14 announced in the first quarter of 2021.
Prior to these most recent results, we had three straight quarters of positive EPS. In quarter four of 2020, TAL reported seven cents EPS; in quarter three it reported eight cents. The second quarter of 2020 saw larger returns of 18 cents earnings-per-share.
However, the first quarter of 2020 was negative with -.10 EPS.
Going further back, EPS was mostly negative in 2019, but mostly positive in 2018. In short, like its stock price, TAL EPS is volatile.
Some analysts believe that has to do with the company’s longevity contending with its role as a provider of cutting-edge or evolving services. Others may believe that the scandal’s impact made its way into the numbers.
In any case, the earnings shows more evidence that the value of TAL has dipped in several ways.
Will Tal Education Revenues Go Up?
There’s a case to be made that as Tal Education has dipped down in terms of both price and earnings-per-share, it is set to recover and resume a climb upward.
However, in the short-term, it’s likely that other setbacks will continue to plague Tal Education, even as it makes incremental gains in future weeks.
Proponents contend that regardless of EPS, TAL has significant runway, and that its “mindful” online/offline transition plan will put it in a comfortable position moving forward. That would suggest that TAL will be able to compete with contenders like Yuanfudao and Zuoyebang, which reportedly enjoy deep VC backing.
Is Tal Education Valuation Fair?
Tal Education market cap is unusually low right now relative to future cash flow forecasts.
Against these local highs of $60 (and macro ATH of $90,) $26 seems like an absolute bargain. Also, there are analysts who believe that TAL is far below fair market price right now. Even a market price of $30 is above what we’re currently seeing, and a median of perhaps $45 per share is not unreasonable, even in the short term.
Analysts also point out that Tal Education went higher than 46% in 7 out of the 10 years that we’ve tracked it. While there’s significant risk here, there is also potential reward, especially where a buy and hold plan may be able to benefit from long action. That’s as long as aggressive short selling doesn’t somehow make its way into this part of the market.
Will Tal Education Stock Recover?
Although there is abundant upside for Tal Education, we rate it as a “sell” currently. That means this is not a stock that we would buy right now in order to earn quick gains.
Keep watching TAL because as mentioned, it might not rocket to the moon right now, but it might be gaining over the year to come.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.