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Why New Oriental Education Stock Dropped Again on Monday

By Rich Smith - Jun 7, 2021 at 10:14AM

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Credit Suisse hates the anticipation of waiting for new regulation.

What happened

Shares of Chinese for-profit education company New Oriental Education & Technology Group (EDU -0.37%) continued their downward trend Monday, falling 7.5% by 9:50 a.m. EDT. A downgrade from Credit Suisse appears to be to blame.

So what

There's no particular bad news hitting New Oriental Education today, aside from the downgrade itself. But as reports this morning, Credit Suisse has pulled its outperform rating on the stock and downgraded it to neutral on worries about just how bad the worst-case scenario could be for China's crackdown on for-profit education companies.

A new law restricting the activities of these companies isn't due to go into effect until Sept. 1, but already the rumblings of restrictions on advertising, hours of operation, and where courses can be taught have Credit Suisse feeling nervous.

Glowing red stock chart arrow trending down

Image source: Getty Images.

Now what

As the news gets "increasingly negative," Credit Suisse is thinking that "the sector's risk/reward is no longer attractive" says TheFly. And so, the investment bank is halting its recommendation of the stock now, and waiting to see the law to assess just how bad the news is, before making a final call on New Oriental Education.

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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