If you think online learning and educational resources have been transforming in the U.S., then you really need to get to know TAL Education Group (ADR) (NYSE:XRS).
XRS is doing for China what all the educational support services in the U.S. have done, combined.
TAL Education Group is kind of like the Alibaba Group Holding Ltd (NYSE:BABA) of education.
Not only does XRS provide K-12 after-school tutoring services, TAL Education Group offers tutoring in subjects like mathematics, English, Chinese, physics, chemistry, biology, history, political science and geography, as well as preschool classes. XRS has learning centers where students physically attend the classes.
Currently, XRS operates 289 learning centers in 19 Chinese cities, including Beijing, Shanghai, Guangzhou, Shenzhen, Xi’an, Wuhan and Zhengzhou.
But that’s just the beginning. The real growth potential is online. XRS has an online education platform that also covers specialized study from college and high school entrance exams, to preschool education and personalized tutorial services to study abroad, mathematics, English and Chinese composition.
There’s no doubt that the educational sector is going to be a big deal in China, primarily because education is revered in China.
Until recently, China exported its children to the U.S. and Europe to attend college, get advanced degrees and then hope that the educated kids would return. But as China has come into its own economically, and the middle class has started to expand, more of the things that valued from the outside can now be given to the masses from domestic channels.
So, what you have here is a long-term trend in disseminating educational opportunities to an education-hungry public. Additionally, you have a long-term trend of an expanding middle class in the most populous nation on the planet, where people will spend to educate themselves or more importantly — their children.
Add to all this the fact that the Chinese stock markets — both Shanghai and Hong Kong — are on fire right now. XRS is certainly benefiting from that, but it’s not beholden on all the speculation that’s erupting.
That’s a result, ironically, of a slowing Chinese economy. You see, China is planning its own version of a quantitative easing package to stimulate the economy. If China’s economy slows more than expected, QE will be bigger. Bigger QE will mean more stimulation, which will be beneficial to a lot companies.
However, what’s most attractive about XRS currently is its ability to grow its business long term in China, and TAL Education Group is most definitely set up to do that.
The current momentum is certainly nice, but it’s even nicer to know that the growth is sustainable.
Another plus for XRS is its numbers still are very good. That can’t be said for many Chinese companies at this point. That means a lot of money is searching for good companies until the Chinese QE kicks in, and that makes XRS even more attractive for investors looking for a solid place to park cash in the Chinese markets.
In the U.S., XRS is not heavily followed, but three out of four analysts that follow TAL Education Group stock rate it a “strong buy.” XRS stock is up 55% in the past year but still isn’t outrageously pricey relative to other Chinese shares.
TAL Education Group’s earnings are due out next and should impress once again. Last quarter, XRS sales rose 35.1%, while earnings beat consensus by nearly 12%.
For the current quarter, The Street is expecting 33.3% annual sales growth and an 8.3% annual earnings decline. However, TAL Education Group has a history of surprising to the upside, and I expect another nice earnings surprise this time around as well.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
