Shares of TAL Education Group (NYSE:TAL) have been crashing in recent months. Year to date, the education stock is down 58% while the S&P 500 has been climbing 12%.
TAL provides after-school tutoring services in China. And what has investors worried are the government's looming crackdowns on that sector. With more potential regulation, the danger is that could restrict TAL's ability to grow. According to a report from Reuters, a draft of the rules could be released by the end of the month. It has some companies so concerned that one has halted plans for a private fundraising round.
Earlier this year, TAL's stock was trading at more than $90 and now it's close to one-third that figure. Goldman Sachs (NYSE:GS) recently lowered its price target for TAL from $80 to just $53. But even at that price, that could potentially be a return of more than 80% from where the stock is today. However, there could be further downgrades in price once investors learn about the restrictions from the Chinese government.
In its most recent fiscal year, TAL reported revenue of $4.5 billion which grew 37% from the previous year. Tighter rules could jeopardize those strong growth numbers, not to mention its ability to post a profit – TAL has been in the red for each of the past two years.
This is high-risk, high-reward investment. Right now, there is an excess of bearishness surrounding the stock and for investors willing to take on the risk, this could be an investment that doubles in value if the news isn't as bad as some are fearing it will be. But there is also no way to be sure the stock doesn't sink any lower. The safer route may be to wait until there's more clarity about the new rules and regulations.
