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Why RISE Education Cayman Stock Soared on Tuesday

By Jon Quast – Updated Aug 18, 2020 at 1:23PM

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Sure, an analyst believes the stock is worth more. But not this much.

What happened

Shares of RISE Education Cayman (REDU) lived up to their name on Tuesday, rising higher after an analyst offered a bullish outlook. This comes after the company reported earnings last week. But even though some analysts are bullish, the size of today's move is a bit of a head-scratcher. As of 12:30 p.m. EDT, RISE stock was up a whopping 52%.

So what

RISE Education is an English-language education company in China. It operates in-person learning centers but can also offer classes online. Since the coronavirus was first reported in China, RISE Education was impacted in the first quarter, with new-student enrollment plummeting. But enrollment was recovering quickly in the second quarter, up 149% quarter over quarter.

A businessman rides a rocket ship expelling cash exhaust over a multi-colored bar chart.

Image source: Getty Images.

Now that the company has reported Q2 results, a Morgan Stanley analyst raised the price target for RISE stock to $6 per share. A raised target is a bullish signal that investors love. But as of this writing, the stock has jumped roughly 40% higher than the price target, making today's move puzzling. 

Now what

Investors might want to tap the brakes. While RISE Education is recovering from Q1, it still has a long way to go. In Q2, revenue was down 55% year over year, and new student enrollment was down 39%. Furthermore, growth was challenged even before COVID-19. For example, new student enrollment was only up 12% from 2018 to 2019.

While enrollment growth is good, it's modest. And enrollment will almost certainly be down for full-year 2020. Therefore, it may be a little premature to reward this small-cap stock with fresh 52-week highs, as the market is doing today.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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RISE Education Cayman Ltd Stock Quote
RISE Education Cayman Ltd
REDU
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