What happened

Chinese private tutoring specialist TAL Education (NYSE:TAL) trailed the market last month by shedding 16% compared to a 1% uptick in the S&P 500, according to S&P Global Market Intelligence. The decline put shares back to roughly even with the wider market so far in 2019. They had been higher by nearly 50% at other points in the year.

Young asian students in a classroom interacting with the teacher.

Image source: Getty Images.

So what

July's dip followed mixed second-quarter earnings results that left investors wanting more. TAL Education revealed solid sales growth late in the month, with revenue rising 28% as the company gained students in both its physical and online classrooms. However, expenses like teacher compensation soared. TAL Education also spent far more cash on marketing and promotion to keep enrollment rising. These negative trends caused operating income to fall 24% to $57 million. Earnings slipped into negative territory, with per share profits worsening to a $0.01 loss compared to an $0.11 gain a year earlier.

Now what

Management is happy with the results of their spending, and so investors can expect profitability to continue to fall in the quarters to come. The trade-off will be robust sales growth, though, with revenue projected to rise by between 28% and 31% in the current quarter.