TAL Education: Studious Growth

10/27/2016 10:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Education is regarded as the surest way to get ahead in China, which creates a big opportunity for private education companies, observes growth expert Mike Cintolo, editor Cabot Top Ten Trader.

TAL Education (XRS) is one of the biggest Chinese education firms, with K-through-12 class offerings that aim to enhance a student’s performance, leading ultimately to admission to an elite university.

The company’s classes include math, English, Chinese, physics, chemistry and biology, all taught in either small classes, personalized tutoring or online courses.

Since its founding in 2003 as a single learning center in Beijing, TAL Education now has nearly 400 learning centers in 25 cities and is constantly expanding, both organically and via acquisition.

Revenue growth accelerated to 43% in fiscal 2016 (ended in February) and exceeded that pace in the company’s latest quarter.

The company just announced that it has acquired ACESSAT, a training service for Chinese students who are studying abroad.

ACESSAT will become part of TAL’s HiWorld service, which focuses on training overseas students for taking US qualifying tests like the SAT, ACT and TOEFL.

Analysts point to the relaxation of China’s one-child policy as another catalyst for TAL Education’s growth.

TAL will release its latest quarterly results on October 27 and analysts are looking for revenue of $251 million and earnings of 53 cents per share.

XRS has been in a long-term uptrend since late 2013, but spent
a year trading sideways from September 2014 to the market meltdown in August 2015.

Since the December/January market correction, the stock was in a jumpy rally until the middle of September, when it spiked higher on heavy volume.

Since that September jump, XRS has been less volatile and is making new highs regularly.

With earnings less than two weeks away, we think XRS should be bought carefully, keeping new positions smaller than usual and waiting for pullbacks of at least a point. A stop at the stock’s previous resistance at $65 makes sense.

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