Shares of TAL Education Group (NYSE:TAL) crashed to new 52-week lows last week amid rumors of some frightening crackdowns in the education sector. One of them involves the possibility that the tutoring companies could become not-for-profit organizations. While that doesn’t appear to be official just yet, reform in the sector has been rumored for weeks and it was merely a question of how severe it would be. If this becomes a reality, then for investors, this would be a worst-case scenario.
TAL’s stock was down more than 70% during Friday’s trading session as the stock, trading around $6, is now a mere fraction of the more than $90 it was at earlier in the year. And it will be a lucky to hold its current price point.
There is still a glimmer of hope that perhaps these proposed rules won’t become reality. However, it presents a massive risk to investors because if it does happen, an investment in TAL effectively becomes dead money. It could lead to the stock no longer trading on a major exchange.
If China doesn’t go through with the regulations, then TAL could become a bargain buy. But that isn’t a scenario worth gambling on and there’s little reason to believe the government will have a change of heart. Investors are better off salvaging what they can at this point because as bad as things are for the stock right now, they can get worse if the government confirms this course of action – it could quickly send TAL’s stock to $0.