Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why New Oriental's Shares Got Crushed

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese education-services provider New Oriental Education (NYSE: EDU  ) were sent to detention by investors today, causing the stock to fall as much as 38% in intraday trading after the company revealed that it's being investigated by the U.S. Securities and Exchange Commission.

So what: The timing of announcing the SEC investigation was a bummer for New Oriental, because otherwise investors would probably be celebrating the fact that the company delivered second-quarter earnings that beat estimates on the top and bottom line. But it wasn't to be.

The actual disclosure from New Oriental doesn't sound particularly sinister. The company said the SEC alerted it on July 13 that it is investigating. On the nature of the investigation, New Oriental said:

The Company believes that the investigation concerns whether there is a sufficient basis for the consolidation of Beijing New Oriental Education & Technology (Group) Co., Ltd., a variable interest entity of the Company, and its wholly owned subsidiaries, into the Company's consolidated financial statements.

Whether that's the true nature and scope of the investigation and what the outcome will be is still unclear. However, the sharp reaction from investors isn't all that surprising, given the high level of fraud that we've seen from China-based companies listed on U.S. exchanges. Clearly, investors now have a hair trigger when it comes to the least hint of legal problems.

Now what: It's really hard to say what's next for New Oriental, because we'll have to wait and see what comes out of the SEC's investigation. Investors will want to keep a close eye on new developments, while those who have been waiting on the sidelines or had been thinking about increasing their position may want to do a deep dive into the company. If -- and that's a big if -- the investigation is relatively benign, then today's huge drop could be a buying opportunity.

Want to keep up to date on New Oriental Education? Add it to your Watchlist.

Motley Fool newsletter services have recommended buying shares of New Oriental Education. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer has no financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, @KoppTheFool, or on Facebook. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1947240, ~/Articles/ArticleHandler.aspx, 10/25/2016 3:16:52 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,167.61 -55.42 -0.30%
S&P 500 2,143.38 -7.95 -0.37%
NASD 5,281.11 -28.72 -0.54%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 3:01 PM
EDU $53.27 Up +4.84 +9.99%
New Oriental Educa… CAPS Rating: **