TAL Education: A Chinese Lesson

03/22/2016 10:00 am EST

Focus: GLOBAL

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

One characteristic of leading growth stocks that sometimes gets overlooked is scale, the size of the potential market for a company’s goods and services, notes growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

TAL Education (XRS) is a private education company that provides pre-school through high-school classes, tutoring and test-preparation services in China.

TAL Education—whose name is said to stand for "Tomorrow Advancing Life" -- has grown steadily to its present 300 learning centers in 19 Chinese cities.

The company’s classes vary from personalized private tutoring, to small classes for young learners, to small-sized math, science, English and Chinese classes, to a large online learning site with over 350,000 registered students.

TAL Education has scale, with lots of room for further expansion, either organically or via M&A, as the private education market in China is highly fragmented, with the top three players controlling less than 4% of the market.

TAL Education acquired Firstleap Education (and its 60 learning centers and 20,000 students) in September 2015 and took a $30 million stake in Phoenix E-Learning in October.

After two years of revenue growth of 39% and 38%, TAL Education has booked four quarters of revenue growth over 40%.

Despite economic woes in China, consumers there appear eager to spend money on education, and TAL Education is a successful and growing player in that arena.

XRS blasted off in October, soaring from $31 on October 1st to $49 on December 21st.

After a correction to $42 in January, the stock popped back to $50 then fell victim to the general market weakness in February, dipping to $43.

But the stock got hot again and recently roared higher on big volume; it is now trading above $50 in new-high territory.

A buy on any weakness looks solid; with a fairly loose stop at $44 to give this volatile issue some wiggle room.

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By Mike Cintolo, Editor of Cabot Top Ten Trader

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