What happened
Shares of Chinese private education provider TAL Education Group (TAL 0.45%) have fallen this week, down by 22% through Thursday trading, according to data provided by S&P Global Market Intelligence.
The drop wasn't quite enough to put TAL Education in negative territory for the year, and its flat performance so far in 2022 is trouncing the 24% decline in the S&P 500.
The slump came as investors worried more about Chinese stocks, as well as TAL Education's upcoming earnings report.
So what
TAL Education, which maintains an online platform and in-person learning centers across China, was hit by rising concerns about Chinese stocks this week. Shares fell more than 20% on Monday as Wall Street feared a slowing of the Chinese economy, increased regulatory challenges, and pandemic lockdowns. TAL Education tends to move in sympathy with these stocks, which were down through Thursday.
Investors also have specific reasons to worry about its upcoming earnings report. TAL Education will announce fiscal Q3 results on Friday, Oct. 28, the company said on Thursday. The report might show continuing stress on the business from management's strategic transformation. Sales were down 83% last quarter, after all, and net losses ballooned to $127 million.
Now what
In that context, it makes sense for investors to view TAL Education as an extremely risky stock right now. Yes, the company's pivot away from some education niches will reduce its exposure to Chinese regulations.
But its sales footprint is also shrinking rapidly, and it isn't clear yet that TAL Education has a path toward sustainably rising earnings. The slowing Chinese economy adds another layer of risk to its business.
Investors should look toward successful businesses with dependable earnings as the potential for a global recession increases. TAL Education doesn't fit that mold, and so the stock may see further declines ahead, especially during turbulent weeks for the wider market.
