This is probably the worst time to be touting a Chinese stock. I just sold three of them in the last two days as China’s situation just gets worse. But one Chinese stock I may take a chance on if it takes a tumble is TAL Education (XRS).
TAL, which stands for Tomorrow Advancing Life, provides after-school tutoring for kids anywhere between kindergarten and the 12th grade. Classes range anywhere from a combination of small classes, to 1-on-1 tutoring, and even online courses. When I last checked TAL had 200 small class centers and 87 one-on-one centers throughout China, with around 40% of those in Beijing.
Kids in China face a more competitive landscape for education than they do in the states, as the college admission rate for a 4-year degree college is just 41% there compared to 64% here. Only 9% of students gain admission into top universities compared to 28% in the US. Admissions to top high schools are also extremely competitive. So parents have to pay, the only question is did these parents put the tuition funds in the stock market.
One Year Chart
Here’s the one-year chart of TAL, which has a weird symbol XRS. Although I feel 29 times earnings is about right for this stock, I highlighted it in green because the 2016 upside is more than 40%.
This company puts out erratic earnings each qtr. Sometimes beating, sometimes missing, sometimes upping estimates and sometimes lowering. But I like the Annual Profits and that growth rate that XRS has delivered year-after-year. Would be nice if the stock fell back into the $20s.
Fair Value
With TAL growing so rapidly, I put the Fair Value at 30x earnings. But that was last week. This week the China story got worse and I may have to lower this Fair Value P/E next qtr.
Sharek’s Take
TAL Education seems like a good company to invest in if the Chinese market continues to free-fall. But both Chinese stocks and Education stocks are risky. Therefore it would be best to just watch XRS and if the stock takes another dip into the $20s then take a chance on it at a discount.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
