Muddy Waters Makes Big Splash in Chinese Private Education Stocks

Muddy Waters made headlines this month. Not the revered blues guitarist and singer, who died in 1983. We’re talking about Muddy Waters Research, a firm that apparently has “developed the knowledge and contacts to navigate China’s muddy waters,” according to its website.

Muddy Waters made its big splash by taking on Beijing-based New Oriental Education & Technology Group (NYSE: EDU, http://www.english.neworiental.org), the largest provider of private education services in China, according to Forbes.com, which covered this story (http://www.forbes.com/sites/hengshao/2012/07/18/chinese-education-firm-dragged-into-muddy-waters/). In a report issued July 18, Muddy Waters suggested New Oriental was fudging its numbers and its store growth. That report, and the company’s announement of an SEC investigation of its financial statements, caused EDU to crater to $9.50, a drop of 57 percent in only two days, according to Forbes. A week later, EDU had rebounded and closed trading July 27 at $11.96, up 23 cents for the day. Its market cap has ballooned to $1.85 billion.

For investors willing to wade into the perhaps shark-infested waters of Chinese private education stocks, most of them like New Oriental trade as ADRs on the NYSE, there are lots of small caps to choose from. They include:

Beijing-based Xueda Education Group (NYSE: XUE, http://www.xueda.com) is a holding company that provides tutorial services for primary and secondary students in China with an emphasis on personal services and one-on-one tutoring. The company has built a network of 273 learning centers throughout China. XUE has a market cap of about $191 million and a 52-week trading range of $2.41-$9.12. It closed July 27 at $ 2.88, no change for the day.

Beijing-based TAL Education Group (NYSE: XRS, http://www.xueersi.com) provides after-school tutoring of core academic subjects including math, biology, English, physics and chemistry to K-12 students in China. XRS just announced earnings on July 24, beating analysts earnings per share estimates by 1 cent ($0.06). Revenue for the quarter was up 48.5 percent on a year-over-year basis. Market cap is about $594 million and 52-week trading range is $7.15-$13.75). XRS closed July 27 at $7.67, up 11 cents for the day.

Beijing-based Ambow Educational Holdings (NYSE: AMBO, http://www.ambow.com.cn) offers education and career enhancement services through an online and offline delivery model. Its targets include students seeking to be admitted to secondary and post-secondary schools. At recent count, AMBO had 131 centers and schools including 107 tutoring centers, five k-12 schools, 17 career enhancement centers and two colleges. Its market cap is $189 million and 52-week trading range is $2.12-$8.15. It closed July 27 at $2.61, up 21 cents for the day.

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