These Chinese Stocks Gain Despite a Turbulent Month on Wall Street

Online education has been the big winner: GSX's head of IR weighs in on the success of the company and the sector.

Author: Anthony Russo   

On fears of the coronavirus, many companies trading in the U.S. including those based in China, have seen their stocks tumble in 2020. But overall, China-based companies have fared better than their American counterparts. And some have not only beaten the down market but have arguably benefited from the coronavirus-driven market crisis, becoming a haven with significant upside potential for Sino-savvy U.S. investors.

While most of the world's markets were free from coronavirus concerns in the first month or two of the year, COVID-19 has spread to 150 countries including the U.S., causing Wall Street to suffer its worst day since Black Monday in October 1987 earlier this month.

Market Gives Online Education "A+" Grade 

The top winners this year have been online education companies, which have found success with the coronavirus keeping people home. One is Beijing-based China Online Education Group (NYSE: COE), or 51Talk, which opened the year trading at $9.69 per American depositary share. From that point, 51Talk surged as high as 284% to $37.19 per share in February. That marks the highest it has traded following its IPO in June 2016, when it raised $45.6 million. 

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(Yahoo Finance: COE)

51Talk followed that up with a strong fourth-quarter report, in which revenue reached $57.2 million, up 34% year-over-year and turned profitable on a net income of $200,000. However, its stock has mostly dropped since then. Last week, it has closed as low as $20.01 per share.

Another notable gainer was education service provider Tarena International, Inc. (Nasdaq: TEDU). Tarena watched its stock soar 138% to $4.83 per share in February from the beginning of the year. While it has dropped since, Tarena is still up significantly from early in the year.  

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(Yahoo Finance: TEDU)

The Bejing-based company started to receive market appreciation when it announced it regained compliance with Nasdaq on its minimum required bid price of $1 per share. Despite that, Tarena has another compliance issue. The company must provide the Nasdaq Hearings Panel with an audit and filing of its full-year  2018 financials by April 24. 

For the full year 2019, Tarena has said that it expects to generate revenues in the range of $342.46 million to $363.6 million, representing a year-over-year increase of between 9% and 15%. 

A K-12 after-school tutoring provider, GSX Techedu Inc. (NYSE: GSX), has also found success in the stock market. Like Tarena and 51Talk., GSX achieved its largest gain in February, as it hit a 37 week high of $46.40 per share, soaring 104% from 2020's open price.

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(Yahoo Finance: GSX)

Sandy Qin, the head of investor relations for GSX, told CapitalWatch last week that it has been able to perform well by focusing on large K-12 class business models as opposed to smaller ones. That model helps GSX improve teachers' capabilities by 100 times, pay higher compensations to its instructors and maintain a profit. 

"As our founder Larry [Chen] has always emphasized, employees across GSX focus on bringing the best quality courses and teaching experience to students and parents, rather than on the stock reaction," Qin said.

She added, "We firmly believe that the U.S. stock market is a highly efficient market that will ultimately reward the real performers of strong fundamentals"

Currently, given the overall volatility of the market, GSX has closed from anywhere between $37.50 per share and $43.09 per share this month. 

According to GSX, it is the first online education company to have its market capitalization exceed $10 billion. It also has its sights set higher, as Qin noted that the company is working its way toward having a market cap of $100 billion.

In 2020, GSX expects to generate revenue growth of 200% and plans to increase the size of its employees.

"We will continue to be committed to hiring and retaining top-notch teachers and talented professionals, investing significantly into technology and content development, and spending wisely in high ROI channels to expand and leverage our customer base, as we move to establish an enduring brand," Qin said.

Data Solutions Also Gain

Now turning to data solutions, 21Vianet Group, Inc. (Nasdaq: VNET) has been one of the gainers in the sector. The company, which provides internet data center services watched its stock soar to four year high of $16.81 per share, earlier this month. It started to surge after it won a bid to deliver and operate a production center for China Everbright Bank Co. Ltd. (SSE: 601818; HKEX: 6818) in January.

While its stock has tanked for the most part last week, it did soar 14% to $11.59 per share by midday on Thursday after Zacks Equity Research praised the company for its strong stock performance this year. Out of 627 companies in Zacks' computer and technology sector, 21Viatnet ranks 4th on its list.

21Viatnet reported 4th quarter revenue of $150.6 million, up 16% year-over-year, while narrowing its net loss to $3.2 million. Last month, 21Vianet signed two convertible note purchase agreements worth $200 million with a group of investors led by Goldman Sachs Asia Strategic Pte. Ltd.

Online marketing and enterprise data solutions provider, iClick Interactive Asia Group Ltd. (Nasdaq: ICLK) has also seen some nice stock market appreciation this year. In February, ICLK took one of its biggest market leaps after it announced it was acquiring an 80% stake in Optimal Power Ltd., which is controlled by digital marketing provider Creative Big Ltd. The Hong Kong-based company's stock reached a 52 week high of $5.49 per share in the following month.

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(Yahoo Finance: ICLK)

Other Gainers

Some other notable gainers since the beginning of the year are the online entertainment platform, Bilibili inc. (Nasdaq: BILI) and the plastic surgery provider, Aesthetic Medical International Holdings Group Ltd. (Nasdaq: AIH) Earlier this month, BILI's shares gained as high as $28.27 apiece or 45% from this year's open but ended last week trading at $20.19 per share.

As for AIH, it watched its stock rise to $10.66 per share this month, marking the highest its traded since its IPO in October 2019. The Shenzhen-headquartered company issued and sold 2.5 million shares at $12 each, raising $30 million. However, it plunged and closed trading last week at $8.65 per share.

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(Yahoo Finance: AIH)

While there have been gainers this year mainly in online education, stock market appreciation may not continue for that sector. With China doing a better job of containing the pandemic, offline education is starting to resume. In the southwest Guizhou Province, over 2,400 high schools have reopened, which includes more than 990,000 students, according to China.org.cn.

With that said, uncertainties will grow on online education companies as it will on the rest of the industries trading on Wall Street. As of midday Thursday, Dow Jones has been down nearly 9,000 points since the beginning of the year, as S&P 500 has plummeted more than 25% since the beginning of the year. 

Same Time Next Year

Things could get worse going forward with the spread of the coronavirus, low oil prices and the upcoming election, which typically sends the markets down regardless. Goldman Sachs has warned clients that S&P 500 could fall to as low 2,000 points by midyear. 

"The coronavirus has created unprecedented financial and societal disruption," Goldman Sachs strategists wrote in a Sunday note.

However, Goldman Sachs projects by the end of 2020, that S&P 500 will recover back to 3,200 points, which is where it was in February. That is a long way away. If investors are looking for safe, but sizzling stocks to play with in the meantime, they should continue to look at some of these Chinese companies. However, expect many Chinese companies to trade downwards after first-quarter earnings come back, reflecting the economic slowdown which hit China during the early months of 2020 at the height of its coronavirus outbreak.

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