Everyone needs air, water, food, shelter…and education for survival. In developed societies, education is even seen as a basic human right. In Asian societies such as China, Korea and Singapore, education is the most tried and tested way to success.

Thus, it is far too common that parents sign their children up for tuition classes in order to give them an edge over others. But this one educational company has received an exceptional amount of media attention recently for the wrong reasons.

As reported by finance.sina.com.cn, here are the “crimes” that the company has been alleged of…

  • Charging exorbitant fees.
  • Engaging in propaganda and fear-mongering activities, such as spreading the idea that educational resources under the existing system are unfairly distributed due to an inept government.
  • Overstating the importance of enrolling in Mathematics Olympiad classes, even though Math Olympiad training might not be suitable for everyone.
We know that “all Asians are good at Math” is just a stereotype.

We know that “all Asians are good at Math” is just a stereotype.

  • Disclosing Math Olympiad contest questions as it has access to insider information.
  • Promoting unhealthy competition among students, and streaming students into top and bottom classes based on their academic results. (Yes, even tuition centres stream students.)
  • Teaching students content that is way ahead of their school syllabus. School teachers have complained that this causes disruption to classes as bored students (who have already learned everything ahead) would want their school teachers to keep up with their pace. Meanwhile, those who have not attended the tuition classes feel extremely pressured to sign up too in fear of losing out.

Sounds like a terrible company, right? The local government probably thought so too. Recently, the Chengdu Bureau of Education ordered nine of its campuses to halt enrollment activities, and four of its campuses to suspend enrollment and teaching activities.

Such a harsh move caused the company’s stock price to fall by 5.03 percent in a single day. Just as you might be thinking that this company is going down, its share price had risen on 17 May to a value higher than before the drop.

Here comes the important question: What is the name of this mystical tuition centre?

The name of tuition centre is Xueersi (学而思), a well-known education brand in China that provides K-12 after-school tutoring service, and is owned by US-listed TAL Education Group. Below is how TAL’s stock has performed since its Initial Public Offering (IPO) in Oct 2010. (Note that its IPO price was only US$10.)

Stock chart of TAL Education Group, Source: Bloomberg

Stock chart of TAL Education Group, Source: Bloomberg

TAL’s current price to earnings (P/E) ratio stands at 96.75, a figure that is relatively higher than the industry average. A very high P/E ratio can mean two things—1) TAL is overpriced, and/or 2) the market expects strong growth in TAL. After all, education in China is still a flourishing industry with a lot of growth potential.

According to markets.ft.com, as of May 16, 2017, the consensus forecast amongst 18 polled investment analysts covering TAL Education Group (ADR) advises that the company will outperform the market. Among the 16 analysts offering 12-month price targets for TAL Education Group, the median estimate was 134.00, a 2.06 percent increase from the price of 131.29 (as of May 16).

Meanwhile, the media continues to bash and criticise “cram schools” and tuition centres such as Xueersi, which means “learning and thinking” in Chinese. Such tuition centres had been argued to result in the exact opposite as many reviews have pointed out that the rote learning methods adopted by Xueersi not only defeat the purpose of education, but also take away the joy of learning. But anxious parents might remain unalarmed by the negative reports.

Out of desperation to help their children stand out from their peers in China’s pressure-cooker education environment, more parents will be staying up all night waiting to register their children at Xueersi. Some will even start trying to secure International Math Olympiad training spots when their children are only two or three years old, because others have done so before them.

I think the interesting thing about Xueersi and the likes of it is that you might not like their business model, agree with their education style, or think highly of the quality of the education/training they provide. If you think that it is just a hype, you might actually be right. But parents buy into the hype anyway, and investors might not want to go against the overarching trend.