Consolidating for 9 months and then encountering executives "group selling," Good Future (TAL.US) has strong performance but no good stock price?

On January 29th of this year, TAL Education Group (TAL.US) disclosed its 26Q3 quarterly financial report as of November 30th of last year.

The financial report shows that TAL achieved a net revenue of $770 million for the period, a year-over-year increase of 27%; additionally, during 26Q9, the company’s cumulative net revenue reached $2.207 billion, a 34.57% increase year-over-year; at the same time, the company’s profitability saw a significant improvement: operating profit for the period was $93.12 million, turning from loss to profit year-over-year. Under these circumstances, the company reported a net profit attributable to shareholders of $131 million, and Non-GAAP net profit reached $141 million, a 266.6% increase year-over-year, far exceeding market expectations.

Buoyed by strong performance, on January 29th, TAL’s stock opened sharply higher with a 10.22% increase and continued to rise, ultimately closing up 18.03% at $12.70. This was the third time in three months that TAL’s stock price broke the $12 threshold since peaking intraday at $13.37 on October 30th of last year.

However, just as the market believed TAL’s stock price might break previous highs driven by its earnings, on January 30th and February 2nd, TAL experienced a “big plunge,” with two consecutive declines. The “group of executives selling shares” once again seemed to be a significant factor affecting the company’s stock price rally.

Transformation + Cost Control Drive Significant Improvement in Profitability

Following the earnings release, TAL’s stock price opened high and closed nearly 20% higher on the same day, which is closely related to its better-than-expected financial performance. One of the key indicators that guided the market’s large-scale buying that day was undoubtedly the Non-GAAP net profit, which better reflects the core business operations.

The report shows that Non-GAAP net profit for 26Q3 reached $140 million, a dramatic increase of 266.6% year-over-year; under this metric, the company’s net profit for the first three quarters of FY26 also reached $320 million, up 124.0% year-over-year. The growth in revenue and the reduction in expenses were critical factors in TAL’s improved profitability.

In terms of revenue, the company achieved net income of $770 million, a 27% increase year-over-year.

As one of the company’s core revenue sources, TAL’s learning services business (including offline small classes and online courses) saw year-over-year growth in both offline small class revenue and online literacy course revenue during 26Q3. Although TAL did not disclose specific revenue figures, it reported that its deferred revenue for the period was $1.16 billion, a significant increase of 73.2% year-over-year. Meanwhile, company executives disclosed at the earnings conference that “the company’s literacy small class renewal rate is around 80%, with stable customer unit prices.”

Regarding the company’s key business solution services, TAL’s executives revealed that in 26Q3, the weekly average active rate of TAL learning device users remained around 80%, with an average daily usage time of about 1 hour. The revenue share of this business has increased from 16.3% in FY23 to over 30% currently.

However, the company also mentioned in the financial report and earnings conference that revenue and sales volume of its learning device business both grew year-over-year, but the quarter-over-quarter growth rate slowed. This was mainly due to product release cycle differences causing high base effects in 26Q3, and the business is gradually shifting from rapid expansion to steady growth.

It is also worth noting that TAL’s current Non-GAAP net profit significantly exceeded its operating profit. This was mainly due to the “other income” item on the income statement, which reached $38.59 million in 26Q3, a 112.7% increase year-over-year; in 26Q9, this figure was $115 million, up 122%.

On the expense side, in 26Q3, thanks to a decrease in online marketing and brand promotion expenses for the learning device business and the seasonal peak in customer acquisition for non-online literacy courses, online marketing expenses decreased quarter-over-quarter. As a result, the company’s sales expense ratio was only 28.6%, a significant decrease of 8.8 percentage points year-over-year. Benefiting from scale effects due to revenue growth and a 30.2% year-over-year decrease in share-based compensation expenses to $108 million, the company’s management expense ratio was 15.4%, down 2.9 percentage points. Consequently, TAL’s gross profit margin in 26Q3 reached 56.1%, an increase of 3.3 percentage points year-over-year, and its Non-GAAP net profit margin attributable to shareholders was 18.4%, a significant increase of 12 percentage points.

Another Round of “Executive Group Selling Shares”?

Since late April last year, TAL’s stock has been in a sideways consolidation.

Looking at the trading pattern before this earnings report, after the stock price continued to rise and touched the upper Bollinger Band in late October, TAL’s stock price then experienced a sustained decline. On October 31st and November 3rd, two consecutive trading days saw large bearish candles that quickly pulled the stock down to the middle Bollinger Band. After that, amid weak market sentiment, TAL’s stock continued to fluctuate between the lower and middle Bollinger Bands.

Even though there were attempts to break above the upper Bollinger Band on December 15th last year and January 12th this year, there was no significant volume increase to support these moves, nor did they form effective bullish candlestick patterns, making these “false breakouts” on the Bollinger indicator. The stock continued to oscillate within the middle and lower Bollinger Bands.

In terms of trading volume, TAL’s daily trading volume during this period was significantly lower than in late October last year, indicating a lack of outside buying support.

However, in late January this year, after a “six consecutive bearish days,” TAL’s stock finally experienced a rebound supported by its fundamentals. Unlike previous rebounds, this time there was a noticeable increase in trading volume, with 15.09 million shares traded on that day, and the candlestick broke through the upper Bollinger Band.

The increased volume suggests that, at the current low stock price, outside investors’ willingness to buy has significantly strengthened compared to before.

But on January 30th and February 2nd, TAL experienced another “big plunge,” with a sharp decrease in volume, which may indicate some external factors affecting investors’ valuation judgments. Multiple executives again “grouped selling shares,” which could be one of the reasons.

It was observed that on February 2nd, TAL issued three disclosures of executive share reductions. The documents showed that on that day, President and CFO Peng Zhuangzhuang sold 25,000 shares, cashing out $317,500 (about 2.2 million RMB); COO Liu Yachao sold 14,602 shares, cashing out $185,400; CTO Tian Mi also sold 132,300 shares, cashing out $1.68 million.

In fact, this was not the first time TAL’s senior executives sold shares. As early as January and April last year, several high-level executives, including the company’s president, independent directors, and COO, engaged in share reduction activities. For example, on April 28th last year, President and CFO Peng Zhuangzhuang sold 15,938 shares, cashing out $146,000 (about 1.05 million RMB). On the same day, independent director FENG YAN sold 11,409 shares, cashing out $104,500; CTO Tian Mi sold 53,655 shares on August 25th last year, cashing out $583,200.

It is worth noting that, based on the stock performance in the days following previous executive share reductions, TAL’s trading volume often shrank. For example, on August 28th last year, the trading volume was only 2.01 million shares, setting a new low for daily trading volume in late August. After the recent disclosures on February 2nd, TAL’s stock traded only 4.63 million shares that day, nearly 70% lower than the trading volume on January 29th.