Analysts on Wall Street Lower Ratings for These 5 Stocks

02. Gaotu Techedu Inc. (NYSE:GOTU)

Price Reaction after the Downgrade: -0.3600 (-11.11%)

On August 31, Gaotu Techedu Inc. (NYSE:GOTU), a significant player in the education technology sector, experienced a notable market shift. This shift was instigated by a downgrade in its stock rating by CLSA. Previously classified as an “Outperform,” indicating positive expectations for the stock’s potential, Gaotu Techedu’s rating was altered to “Underperform” by CLSA. This shift underscores a more cautious viewpoint, suggesting that the stock’s growth trajectory might now face challenges compared to prevailing market expectations. Significantly, the price target for the stock also experienced a change from $3.32 to $3.30 as part of the downgrade. This adjustment adds a layer of insight, demonstrating the comprehensive analysis conducted by analysts as they evaluate the stock’s potential within the market. The immediate market response became evident through the stock’s current price of $2.88, which encountered a significant decrease of -11.1%.

Here is what Bireme Capital has to say about Gaotu Techedu Inc. in its Q3 2021 investor letter:

“GSX (now GOTU), a Chinese education company which was accused of falsifying a majority of its online customer base, has seen its share price whipsaw in 2021 from $50 to $140 to today’s price of below $4. The plunge began in early March, as GSX announced earnings results that included a wider quarterly loss and a 30% weaker Q2 revenue forecast than Wall Street had expected.

Then a few weeks later rumors surfaced of an impending regulatory crackdown on for-profit education companies in China. Simultaneously one of their largest shareholders, Archegos Capital Management, was collapsing. Archegos’s margin calls forced their brokers to sell massive blocks of shares in various tech and media stocks, including GSX, which seems to have hastened the price decline.The final nail in the coffin for GSX came on 7/23, when Chinese regulators banned for-profit after-school tutoring.”