After nine months of sideways trading, TAL Education Group faces another round of executive "group selling." Despite strong performance, why doesn't TAL.US have a good stock price?

On January 29th of this year, TAL Education Group Sponsored ADR Class A (TAL.US) disclosed its financial report for the 26Q3 quarter ending on November 30th of last year. The financial report shows that TAL Education Group Sponsored ADR Class A achieved a net income of $770 million in the current period, a year-on-year increase of 27%; and in the 26Q9 period, the company's net income accumulated to $2.207 billion, a year-on-year increase of 34.57%. At the same time, the company's profitability significantly improved: the operating profit in the current period was $93.123 million, achieving a turnaround from loss to profit year-on-year, under this circumstance, the company achieved a net profit attributable to shareholders of $131 million, and the Non-GAAP net profit reached $141 million, an increase of 266.6% year-on-year, far exceeding market expectations. Stimulated by the positive performance, on January 29th, TAL Education Group Sponsored ADR Class A's stock price opened significantly higher by 10.22% and continued to rise, eventually closing up by 18.03%. The closing price on that day was $12.70, marking the third time in 3 months that TAL Education Group Sponsored ADR Class A's stock price broke through the $12 threshold since reaching a high of $13.37 in intra-day trading on October 30th of last year. However, just when the market believed that TAL Education Group Sponsored ADR Class A's stock price was likely to break through previous highs with the help of its performance, on January 30th and February 2nd, TAL Education Group Sponsored ADR Class A experienced a "high-altitude diving" trend, leading to two consecutive days of declines. And the "massive reduction by senior management" seems to once again be an important factor affecting the company's stock price growth. Boost in profitability due to transformation and cost control After the disclosure of the financial report, TAL Education Group Sponsored ADR Class A's stock price managed to open high and rise nearly 20% on the same day, which was not unrelated to the better-than-expected financial performance. Among the key indicators that led to a surge in buying on the day were the Non-GAAP net profits that better reflect the company's main business operations. The financial report shows that the Non-GAAP net profit for the 26Q3 quarter reached $140 million, a staggering increase of 266.6% year-on-year; and according to this criterion, the net profit for the first three quarters of the 2026 fiscal year also reached $320 million, an increase of 124.0% year-on-year. The growth on the revenue side and the reduction in expenses are key factors driving the improvement in profitability of TAL Education Group Sponsored ADR Class A. On the revenue side, the company achieved a net income of $770 million in the current period, a year-on-year increase of 27%. As one of the company's core revenue sources, TAL Education Group Sponsored ADR Class A's learning services business (including offline small group classes and online services) saw an increase in revenue in the current period. Although the specific revenue was not disclosed in the financial report, it was revealed that the deferred revenue for the period reached $1.16 billion, a significant increase of 73.2% year-on-year. At the same time, company executives disclosed during the financial report performance meeting that "the renewal rate for the company's competency small groups is around 80%, and the average customer price remains stable." In terms of the core business content solution business transformation of the company, company executives revealed that in the 26Q3 quarter, the weekly average activity rate of TAL Education Group Sponsored ADR Class A's learning machine users remained at around 80%, with an average daily usage time of about 1 hour. Moreover, in terms of overall revenue, the share of this business has increased from 16.3% in the 2023 fiscal year to over 30% currently. However, the company mentioned in the financial report and performance meeting that the revenue and sales volume of the learning device business both increased year-on-year in a single quarter, but the growth rate slowed down compared to the previous quarter, mainly due to the difference in product release cycles causing a high base issue in sales volume in the 26Q3 quarter. Currently, this business is gradually transitioning from rapid expansion to stable growth. It is worth mentioning that the Non-GAAP net profit of TAL Education Group Sponsored ADR Class A for the current period is significantly higher than its operating profit for the period. This is mainly due to the "other income" item in the profit statement, which achieved $38.591 million in 26Q3, an increase of 112.7% year-on-year; and in the 26Q9 quarter, this indicator was $115 million, a 122% increase year-on-year. On the expense side, in the 26Q3 quarter, due in part to the reduction in online marketing and brand promotion expenses of the company's learning device business, and also due to the peak season for non-online competency courses in this quarter, corresponding online marketing expenses decreased compared to the previous quarter, resulting in a sales expense rate of only 28.6% for the company in the current period, a significant decrease of 8.8 percentage points year-on-year. Benefiting from the scale effect brought about by the increase in revenue, and the company's total stock-based compensation expenses in the current period decreased by 30.2% to $108 million, the company's management expense rate was 15.4%, a decrease of 2.9 percentage points year-on-year. It is because of these factors that TAL Education Group Sponsored ADR Class A achieved a gross profit margin of 56.1% in 26Q3, an increase of 3.3 percentage points year-on-year, and a Non-GAAP net profit margin of 18.4%, a significant increase of 12 percentage points year-on-year. Another round of "massive reduction by senior management"? It can be observed that since the end of April last year, TAL Education Group Sponsored ADR Class A's stock price has been fluctuating. Looking at the market situation before the disclosure of this financial report, after continuous upward movement in late October, reaching the upper BOLL, TAL Education Group Sponsored ADR Class A's stock price continued to decline. The stock price quickly dropped to the middle BOLL line with large bearish candles on October 31st and November 3rd. Subsequently, TAL Education Group Sponsored ADR Class A's stock price continued to fluctuate between the middle and lower BOLL line amidst the gloomy market sentiment. Even though there were trends challenging the upper BOLL line on December 15th last year and January 12th this year, there was no significant increase in trading volume to support these movements, and there was no effective breakout of the real body candles, which was a typical indication of a "fake breakout" according to the BOLL line indicator. Subsequently, the company's stock price continued to oscillate between the middle and lower BOLL line. Looking at the trading volume, during this period, TAL Education Group Sponsored ADR Class A's daily trading volumes significantly reduced compared to late October of last year, indicating a lack of off-market buyer interest. However, towards the end of January, after a six-day decline in the stock price, TAL Education Group Sponsored ADR Class A's stock price finally saw a rebound on January 29th, supported by the financial report fundamentals. This time, there was a significant increase in trading volume, with a trading volume of 15.0932 million shares on that day, and the real body candle broke through the upper BOLL line. The increased trading volume indicates that facing TAL Education Group Sponsored ADR Class A's low stock price at the time, there was a significant increase in off-market holder interest compared to before. But on January 30th and February 2nd, TAL Education Group Sponsored ADR Class A experienced a wave of "high-altitude dives", leading to two consecutive declines with a significant reduction in trading volume. This may indicate that some factors affected the off-market capital's evaluation of the company's valuation, and the second round of "massive reductions by senior management" may be one of those factors. It was observed that on February 2nd, TAL Education Group Sponsored ADR Class A released an announcement disclosing three files of senior management reducing their holdings. The files showed that on February 2nd, TAL Education Group Sponsored ADR Class A's president and CFO, Peng Zhuangzhuang, reduced his holdings by 25,000 shares, cashing out $317,500 (about 2.2 million RMB); at the same time, TAL Education Group Sponsored ADR Class A's director and COO, Liu Yachao, reduced his holdings by 14,602 shares, cashing out $185,400; TAL Education Group Sponsored ADR Class A's ACTO, Tian Mi, also reduced his holdings by 132,300 shares, cashing out $1.68 million. In fact, this is not the first time that senior executives of TAL Education Group Sponsored ADR Class A have reduced their holdings. As early as January and April of last year, there were series of reductions in holdings by internal members of TAL Education Group Sponsored ADR Class A, including the company's president, independent directors, COO, and other senior executives. For example, on April 28th of last year, TAL Education Group Sponsored ADR Class A's president and CFO, Peng Zhuangzhuang, reduced his holdings by 15,938 shares, cashing out $146,000 (about 1.05 million RMB). On the same day, TAL Education Group Sponsored ADR Class A's independent director, Feng Yan, also reduced his holdings by 11,409 shares, cashing out $104,500; TAL Education Group Sponsored ADR Class A's ACTO, Tian Mi, sold 53,655 shares on August 25th of last year, cashing out $583,200. It is worth mentioning that after the previous reductions in holdings by senior executives of TAL Education Group Sponsored ADR Class A, the company's stock price experienced a contraction in trading volume. For example, on August 28th last year, TAL Education Group Sponsored ADR Class A's daily trading volume dropped to 2.0149 million shares, setting a new low for the company's stock trading volume in late August. On February 2nd of this year, after the disclosure of senior executive reductions in holdings, TAL Education Group Sponsored ADR Class A's stock trading volume fell to 4.6338 million shares on the same day, a decrease of nearly 70% from the trading volume on January 29th.