TAL: Educating China

12/22/2015 10:00 am EST

Focus: GLOBAL

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Education is big business in China, as most families have just one child and that frees up considerable resources for intensive tutoring and preparation, suggests growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

The single-child policy was recently scrapped and a wave of second children coming along in a few years could be a future factor in investors’ liking for educational stocks.

Our top new pick is TAL Education (XRS), a stock that looks to be in a bull market of its own.

TAL Education offers services from kindergarten through high school, concentrating on core academic subjects, including math, English, Chinese, physics, chemistry, and biology.

Classes come in three tiers, with students learning in small classes, via personalized premium services and through online courses.

Starting with one learning center in Beijing in 2003, TAL has expanded to 19 cities and 300 learning centers and has grown revenue by 39% and 38% in the last two fiscal years.

While most growth has been organic, TAL acquired rival Firstleap Education and its 60 learning centers in September 2015.

Some investors like TAL Education’s aggressive expansion program and some like the strong results from the latest quarterly report in October, 100% earnings growth on a 42% revenue increase.

And others like the addition of the company to the MSCI Emerging Markets Index that was announced in November. There is plenty of economic logic to all three.
XRS came public in October 2010 and had a rough time of it until the middle of 2012, when it began a rally that gained momentum in 2013.

2014 brought a couple of three-month corrections followed by rallies to new highs and that pattern repeated in 2015. But since late September, XRS has been on fire, rocketing from $30 to$ 45 with just one week of modest pullback.

Volume has also increased significantly, including a major spike on November 30. XRS has pulled back slightly from its recent high at $47. Try to get in under $45 and use a stop around $41.

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