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Saturday, May 28, 2022

What has caused GaotuTechedu Inc. (GOTU) stock to tumble?

GaotuTechedu Inc. (GOTU), a tech driven educational company based in China, had its shares in the doldrums on Monday after the announcement by the Chinese government to ban private educational companies. This resulted in the share price of GOTU getting plummeted. The company’s share price decreased to $2.50 from $3.52 on Monday, a humongous decrease of about 29%. The shares are currently trading at $2.51 in the premarket.

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What happened with GOTU?

The new set of regulations imposed by the Chinese government, on Saturday, banned the private educational companies from going public. It also asked companies to stop making profits via tutoring. This set of regulations proved to have a harsh impact upon the number of Chinese educational tycoons, and in particular, upon GOTU, whose share price has decreased to about 70% in the New York stock exchange (NYSE) since Friday.

GOTU’s last 12 months

Since the last 12 months, the performance of GOTU’s stock was on a bumpy ride. In February, the stock attained the maximum price of $142.17. This massive rise in stock price was followed by a stable period up until mid of March. Afterward, owing to the review by government regulators to look out for loopholes in the private educational sector, the company suffered heavily. Its share price decreased to $37.59, and it never again achieved the same heights which it enjoyed during the start of the year.

Allegations of fraud

The company’s share increased by about tenfold after it initially offered itself on the NYSE, and was valued some $3 billion at that time, but the allegations of fraudulent activities by a number of investment firms against the educational tycoon had a severe impact upon GOTU’s performance. In October 2020, researchers accused GOTU of fabricating its revenues, and hence, resultantly affecting its share price. But, despite of all these allegations, the company continued to blossom.

COVID’s impact upon GOTU

The COVID-19 proved to be a blessing in disguise for GOTU. Being a tech driven educational company believing in remote education, it increased its capital substantially during that time period. The first three quarters of 2020 saw an increase of 316.5% increase in the company’s revenues. But as the COVID situation got better, the company was again engulfed in the quagmire of fraudulent activities allegations, and with tightening regulations, there remained no way out for the company of its troubles.

What future holds in store for GOTU?

Though current times have proven to be a bit tough for GOTU, the future seems to be on a positive trend for it. Analysts have forecasted an increase of 84.6% annual growth in earnings. At the moment, the situation doesn’t seem to be on a perfect track but optimistically looking toward the future situation, it is hoped that the stock could attain its momentum back within the next few months.

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