What happened
TAL Education Group(NYSE: TAL) wasn't in a good position to instruct companies on how to boost their stock price this week.
The Chinese for-profit learning company's American Depositary Shares (ADSes) moved up only marginally across the five trading days, crawling less than 1% higher according to data compiled by S&P Global Market Intelligence. An analyst's downgrade played a big role in that performance, as did investor concerns about a technology that could threaten the education sector as a whole.
So what
That downgrade occurred Monday morning and was enacted by UBS(NYSE: UBS) prognosticator Felix Liu. Liu changed his TAL recommendation to neutral from his previous buy, setting a new price target of $6.20 per ADS as he did so.
A chief concern of Liu's was the need for TAL to invest in hardware to maintain and grow its business, a situation he believes will lead to an erosion of profit margins in the short term.
That didn't help investor sentiment, nor did an earnings report published the following day by American education company Chegg(NYSE: CHGG).
While Chegg's first-quarter results were good on the surface -- and topped analyst estimates -- its warning about the competitive threat posed by artificial intelligence (AI) technology of the moment ChatGPT had education sector investors scrambling for the exits. And if Chegg is exposed to risk from ChatGPT and other AI solutions, surely TAL is too.
Now what
Considering that other education stocks took harder hits to their share prices than TAL after Chegg's bombshell, the Chinese company actually ended up relatively unscathed. That concern about AI is very real, however, and those interested in TAL (and peer stocks, while we're at it) would be well advised to keep an eye on how the technology shapes the education landscape in the coming months and years.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Chegg and TAL Education. The Motley Fool has a disclosure policy.
