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.
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.
