At the beginning of this year, Tiger Global Management owned a total of about 23.5 million shares in TAL Education Group (NYSE:XRS), a $670 million market cap Chinese tutoring company. However, in recent months the hedge fund seems to have been reducing its stake. A 13D in late October had its holdings falling to 22.2 million shares, and a more recent filing reports a position of 20.9 million. Tiger Global still owns the equivalent of 31% of the total shares outstanding, so it has quite a bit of exposure to the company, but it’s possible that these sales (which come after the stock has sunk 15% in the last year) indicate disappointment in the company(see Tiger Global’s latest stock picks). Tiger Global, as might be inferred from the name, is one of the “Tiger Cub” funds founded by former employees of billionaire Julian Robertson’s legendary hedge fund Tiger Management (find stocks Robertson has been buying).
The most recent quarterly report, for the fiscal quarter ending in August 2012, showed a 32% growth rate in revenue compared to the same period in the previous fiscal year. With margins increasing as well, earnings were up at an even higher rate. The operating results were also impressive: physical locations decreased, but student enrollment was up 25% (which also indicates that revenue per student was up slightly). In addition, TAL Education Group reported over $200 million in cash on its balance sheet, meaning that a substantial portion of its market cap is in the form of cash.
While the growth rate is high, TAL’s income remains fairly low in relation to its current valuation, even if we strip out the cash. The stock trades at 23 times trailing earnings, and the enterprise value is 11.5 times trailing EBITDA. Certainly TAL Education Group is a growth company, and Wall Street analysts expect strong earnings growth over the next several years (the five-year PEG ratio is 0.7), but it’s interesting that the company doesn’t carry as much of a “China discount” as some other stocks; investors in Chinese-oriented stocks have been worried about weaker macro numbers, as well as the fact that some companies have been found to be reporting false financial data.