Please ensure Javascript is enabled for purposes of website accessibility

Why Youdao Shares Were Falling Today

By Jeremy Bowman - Feb 11, 2020 at 12:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The stock pulled back after a huge surge.

What happened

Shares of Youdao (DAO 7.72%), the Chinese online education service, were giving back gains today after a two-day rally that sent the stock up 80% on extremely high volume. That surge seemed to be prompted by reports that schools in China will be closed through at least mid-February as the country attempts to contain the coronavirus outbreak. 

That news caused some to rush into Youdao shares, believing that it would get a boost from schools being closed. After the two-day surge, traders now seem to believe that the stock has been overbought, and it was down 17.9% at 10:57 a.m. EDT.

An Asian boy sits in a classroom in front of a laptop computer.

Image source: Getty Images.

So what

Youdao just had its IPO in October, and the stock has mostly traded flat since its debut at $17. The company provides online courses for pre-K, K-12, and college students, and offers tools like a pocket translator, learning apps, and online resources like dictionaries.

It's not immediately clear what caused the rally other than the news about school closures, but the gains seemed to be mostly driven by day traders and momentum, given that trading volume reached 1.9 million shares compared to a daily average of just 100,000.

Now what

Trading volume remains elevated today at 940,000 shares exchanged, indicating that the volatility in Youdao stock is likely to continue. Notably, other Chinese online education stocks like New Oriental Education and TAL Education Group have seen modest gains in the last few days, but nothing like the explosion that Youdao has experienced. That may be the clearest sign that Youdao's rally is just a bubble.

Investors may want to stay away until trading volume cools off and the wild swings go away.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends TAL Education Group. The Motley Fool recommends New Oriental Education & Technology Group. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Youdao, Inc. Stock Quote
Youdao, Inc.
DAO
$5.30 (7.72%) $0.38
New Oriental Education & Technology Group Inc. Stock Quote
New Oriental Education & Technology Group Inc.
EDU
$24.62 (-5.01%) $-1.30
TAL Education Group Stock Quote
TAL Education Group
TAL
$4.50 (-3.64%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
403%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.