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Why New Oriental Stock Plunged Today

By Joe Tenebruso - May 13, 2021 at 6:22PM

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China may move to slow the growth of its private education industry.

What happened 

Shares of New Oriental Education & Technology Group (EDU -3.26%) fell 14.4% Thursday, following reports of a government crackdown on tutoring companies.  

So what

China is planning to curtail the expansion of its $120 billion private tutoring industry, according to Reuters, in an attempt to reduce the stress of school-age children and their parents. The government hopes that by reducing the costs of having kids, people will choose to have more babies -- at a time when the country's birthrate is rapidly declining.

A downwardly sloping stock chart.

New Oriental Education & Technology Group's stock price fell sharply Thursday. Image source: Getty Images.

The Ministry of Education of the People's Republic of China is said to be preparing rules for K-12 tutoring that could be released by the end of June. The rules are expected to limit where and when classes can take place, as well as the fees charged by education companies.

The restrictions will be in addition to those announced in March, which limited the times classes could be live-streamed and the types of advertising tutoring companies could deploy.

Now what 

Like many international stocks, Chinese companies can offer the prospect of tantalizing growth in revenue and earnings, due in part to the country's quickly expanding economy. However, Chinese stocks, in particular, come with a high risk of government intervention.

When China decides an industry's growth needs to slow, regulators have the power to make that happen. Unfortunately, that appears to be the case with education companies today.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends New Oriental Education & Technology Group. The Motley Fool has a disclosure policy.

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New Oriental Education & Technology Group Inc. Stock Quote
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