Why GSX Techedu Stock Crashed Today

This article was originally published on this site

© Provided by The Motley Fool Why GSX Techedu Stock Crashed Today

What happened

Shares of Chinese online after-school tutoring stock Gaotu Techedu (NYSE: GOTU), which changed its name from “GSX Techedu” last week, closed down 9% on Friday after investment bank Citigroup downgraded the stock all the way from buy to sell.

So what

According to Citi, Chinese news site Xinhua Net quoted Chinese President Xi Jinping commenting that “students should not rely for their studies on after-school tutoring.”

And given that after-school tutoring is basically Gaotu Techedu’s entire business model, you can understand why that comment kind of cut the stock to the quick.

© Getty Images Chinese flag superimposed on a stock market chart

Now what

The next steps, warns Citi in a note covered today on TheFly.com, could be for Chinese regulators to impose controls on “excessive capitalization,” put caps on pricing, ban advertising of tutoring services, and perhaps even restrict tutoring sessions to weekends and holidays.

Load Error

It’s that last possibility that worries me most: If tutoring becomes off limits on weekdays, that would immediately cut the potential revenue Gaotu could collect in a week by more than 70%.

SPONSORED:

10 stocks we like better than GSX Techedu Inc.

When investing geniuses David and Tom Gardner have 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.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and GSX Techedu Inc. wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of June 7, 2021

 

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Continue Reading