Why Shares of TAL Education Group Tumbled

Is this meaningful? Or just another movement?

May 15, 2014 at 7:17PM

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 TAL Education Group (NYSE:XRS) fell as much as 23%, and finished down 20% today after the company announced a convertible debt offering.

So what: The provider of after-school tutoring services in China last night said it plans to sell $200 million in convertible senior notes due 2019. TAL said it would use the proceeds for strategic investments and general corporate purposes. Because the debt is convertible into stock, it has the potential to dilute current investors by as much as 12%.  

Now what: The sell-off seems bizarre as the market does not usually react strongly to debt offerings, even convertible ones that could dilute shareholders. The debt has also not yet been priced, so we don't know how interest expense would affect TAL's bottom line. The company currently has no debt on its books, but its balance sheet is small, with just $427 million in total assets as of its last report. I'd stay tuned to see how the debt gets priced. You can stay on top of TAL Education news by adding the company to your Watchlist here.

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Jun 12, 2015 at 5:01PM

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