What happened
Shares of New Oriental Education & Technology Group (EDU -2.19%), TAL Education Group (TAL -1.89%), and Gaotu Techedu (GOTU -1.41%) -- all for-profit Chinese education stocks -- were rising today, likely for two reasons.
First, an analyst's positive note for New Oriental sent shares higher yesterday and likely helped it continue climbing today, while helping its rivals' stocks jump as well.
Second, recent reports have highlighted that for-profit education companies, including New Oriental, have begun incorporating e-commerce sales on their technology platforms in an effort to stay afloat after the Chinese government cracked down on the for-profit education sector.
New Oriental was up by 23.2%, TAL Education had gained 13%, and Gaotu Techedu was up by 14.5% as of 12:30 p.m. ET.
So what
Yesterday, J.P. Morgan analyst DS Kim upgraded New Oriental Education to overweight from neutral and raised the stock's price target to $24, up from $14. Kim said the stock "looks really cheap" and that investors are "literally being paid to wait" until the company completes its restructuring.
Image source: Getty Images.
That positive sentiment sent New Orientals' share price rising yesterday, and it's likely that investors are pushing the stock higher again as they process Kim's comments.
The positive comments about New Oriental's business are also having a spillover effect on TAL Education and Gaotu Techedu.
All of these companies have suffered huge share price losses after the government implemented restrictions on online education and tutoring in the country last year. So investors in all of these companies are latching onto Kim's comments and applying them to TAL Education and Gaotu Techedu as well.
Additionally, over the past few days, New Oriental has received attention for incorporating e-commerce into its learning platform. Some educators on the platform have begun selling products on the platform, using both English and Chinese, in an effort to make money and teach English at the same time.
Over the weekend New Oriental said its daily sales volume had grown by 10 times over the past few days. Some of the live videos have gone viral recently and it's caused some investors to believe these education companies could transition further into e-commerce.
Now what
While it's good to see the share prices of New Oriental, TAL Education, and Gaotu Techedu rise today, investors should remember that the future of these companies is still uncertain as they try to transition to new business models.
Even if they are successful in implementing some e-commerce opportunities, it doesn't necessarily mean they'll be successful with their online sales.
The huge share price gains for each company today are a good reminder that these stocks are very volatile right now. And with investors still trying to decipher if New Oriental, TAL Education, and Gaotu Techedu can adapt to China's shifting education sector, it's likely that these companies will continue to experience significant share price swings in the short term.
