Tal Stock Braces for Worst Day in Years on Dismal Forecast, Muddy Waters Report

Muddy Waters accused the company of misleading investors

Managing Editor
Jul 26, 2018 at 9:13 AM
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TAL Education Group (NYSE:TAL) stock is trading down 16.7% ahead of the open, as the tutoring company's disappointing current-quarter revenue forecast overshadows better-than-expected fiscal first-quarter results. In addition, Muddy Waters, which is short TAL, accused the Chinese firm of reporting fraudulent profits, as well as "misleading investors about the health of its core Peiyou business."

On the charts, TAL stock pulled back after scoring a record high of $47.63 on June 12, and since then, has churned between the $36-$41 area. Should today's expected price action play out -- which would have TAL logging its worst day since May 2014 -- the shares could breach that $36 level, which also coincides with their 160-day moving average. Nevertheless, the equity has added 37% as of yesterday's close at $40.82.

Short sellers have started to target the sinking stock alongside Muddy Waters, with short interest up by nearly 13% in the most recent reporting period. However, the 14.15 million shares sold short represents a meager 2.9% of TAL's total available float, indicating there is ample room aboard the bearish bandwagon.

Should the shares continue to slide, there's ample room for analysts to downwardly revise their outlooks -- which could create more selling pressure. Of the 25 brokerages covering TAL stock, 19 maintain a "buy" or better rating. Plus, the average 12-month price target sits at $43.27.

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