China Crackdown is Crushing These 5 Stocks

1. New Oriental Education & Technology Group Inc. (NYSE:EDU)

Number of Hedge Fund Holders: 39   

Percentage Decline in Share Price Over Past Three Months: 77%

New Oriental Education & Technology Group Inc. (NYSE:EDU) is ranked first on our list of 10 stocks that the China crackdown is crushing. The firm provides private educational services across China. It is headquartered in Beijing. 

On July 27, investment advisory Deutsche Bank downgraded New Oriental Education & Technology Group Inc. (NYSE:EDU) stock to Hold from Buy and lowered the price target to $2.50 from $20.10, noting that China was moving towards turning after-school tutoring firms into non-profit entities. 

At the end of the second quarter of 2021, 39 hedge funds in the database of Insider Monkey held stakes worth $590 million in New Oriental Education & Technology Group Inc. (NYSE:EDU), down from 45 in the preceding quarter worth $2 billion. 

In its Q1 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and New Oriental Education & Technology Group Inc. (NYSE:EDU) was one of them. Here is what the fund said:

“New Oriental Education shares declined in the quarter, seemingly on account of two notable drivers. First, Chinese online education is currently under a regulatory microscope, although the online tutoring area is not central to New Oriental’s business. We continue to believe that, as a large player in a highly fragmented market, New Oriental is well-positioned to manage regulatory change and offers regulators an easier touchpoint to regulate and monitor than individual mom & pop operators.

As regulatory fears hit the after-school tutoring market, we think New Oriental, a leading player in brick-and-mortar after-school tutoring, could gain strength. We think the long-term backdrop for after-school tutoring remains quite favorable. Significant scale advantages and a highly cash generative model with just approximately 5% market share indicate that New Oriental has potential to grow at a high rate, in our opinion. Further, movements by another investor in New Oriental in late March 2021 prompted indiscriminate selling of shares. Those sales left shares trading at a compelling valuation, in our opinion, so we acted by adding to our position. We think New Oriental remains poised to grow earnings at approximately 25% annual rate in the coming years.”

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