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Why New Oriental Education Stock Plunged 14% This Week

By Rich Smith - Jun 4, 2021 at 12:12PM

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China's crackdown on for-profit education just got serious.

What happened

Worries over China's crackdown on for-profit education companies continued to plague shares of New Oriental Education (EDU -8.57%) this week. As Friday trading gets underway, shares of the Chinese for-profit education powerhouse are looking likely to close the week with a loss of as much as 14%.

So what

In recent weeks, worries over just what China is up to have been somewhat inchoate: there are fears of tightened standards for opening "learning centers," restrictions on companies advertising their services, limits on hours when education can be conducted online, and outright bans on tutoring services for pre-K kids.

This week, the concerns got more concrete, with Nikkei Asia reporting that the State Administration for Market Regulation has fined 15 different private tutoring companies -- New Oriental Education among them -- for allegedly engaging in false advertising and deceptive sales practices.

Man examines a stock chart superimposed on a Chinese flag

Image source: Getty Images.

Now what

Now, the fines in question are themselves of minimal concern, reportedly totaling just $5.7 million across the 15 companies affected. Relative to New Oriental Education's $3.9 billion-a-year business, that's nothing to worry about. But investors appear to be asking, "What comes next?" If this week's fines are a shot across the bow, what new fines, restrictions, or outright bans on conducting business are still coming down the pike?

And no one yet knows the answer -- that's why New Oriental Education stock is down so much.

Rich Smith 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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