What happened
For the second day running, Chinese education stocks New Oriental Education & Technology Group (NYSE: EDU), Gaotu Techedu (NYSE: GOTU), and TAL Education Group (NYSE: TAL) received failing grades from investors on Friday.
As of 11:05 a.m. ET, New Oriental Education is down 6.6%, Gaotu Techedu is down 8.5%, and TAL is leading the whole sector lower with a 10.7% loss.
Image source: Getty Images.
So what
So what's ailing the Chinese education stocks today?
Yesterday, the U.S. Securities and Exchange Commission (SEC) announced it has added six more U.S.-listed Chinese stocks to its list of companies subject to delisting from U.S. exchanges for failure to comply with the Holding Foreign Companies Accountable Act of 2020. Under this law, the SEC is supposed to "publicly disclose on its website the list of Commission-Identified Issuers [and] the number of consecutive years that an issuer has been identified as a Commission-Identified Issuer" in order that "investors and market participants ... have sufficient notice regarding whether a security that they hold or plan to hold is [at] risk that such security may be subject to a trading prohibition in the future."
Foreign companies have three years to rectify any failures in their disclosures, and specifically, to permit U.S. auditing firms subject to oversight by the U.S. Public Company Accounting Oversight Board (PCAOB) to fully inspect their financials. Failing that, the SEC can ban their securities from trading in the U.S.
Now what
None of New Oriental, Gaotu, or TAL made the list this week -- but they all might soon.
New Oriental Education first listed on the New York Stock Exchange in 2006, and TAL in 2010. Gaotu was the most recent arrival to U.S. markets, conducting its IPO in June 2019. But even Gaotu is now only three months away from potentially finding itself named on the SEC's list.
Unless and until the Chinese government changes its policy and relaxes its iron grip on information about its companies, and permits Chinese companies to accede to complete audits by foreign auditors, the writing seems not just written, but deeply engraved on the wall here: Sooner or later, these stocks will be delisted.
Reminded of that fact by the SEC's action this week, investors in New Oriental, Gaotu, and TAL are selling while they still can.
10 stocks we like better than New Oriental Education & Technology Group
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and New Oriental Education & Technology Group wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of March 3, 2022
Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends New Oriental Education & Technology Group and TAL Education Group. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
