MENU

Another Chinese company under scrutiny

New Oriental Education & Technology (NYSE: EDU) has carved a cozy living out of preparing children of China’s well-to-do parents for critical tests, but today it’s the educator that’s getting schooled.

The country’s leading private educator saw its stock fall by as much as a third after revealing that the SEC is looking into the validity of the company’s past financial statements.

The sticking point appears to be the way that New Oriental has been accounting for its variable interest entity, Beijing New Oriental Education & Technology.

We still don’t know if the company is guilty — or the extent of the faulty accounting if it did in fact mess up — but you know how gun-shy stateside investors have become when suspicions and accusations arise of Chinese equities.

Short first, ask questions later.

The reaction is still a bit of a surprise. New Oriental isn’t a recent debutante or some obscure company. It’s a category leader. It has been trading on the New York Stock Exchange since 2006. This obviously isn’t enough to vindicate the company, but it should be enough to grant it the benefit of the doubt.

Making matters worse, many of China’s popular growth stocks are also taking a hit.

  • Search engine leader Baidu (Nasdaq: BIDU) was trading 3% lower.
  • SINA (Nasdaq: SINA), the popular online portal behind the Twitter-like SINA Weibo, is taking an even harder 7% hit.
  • China’s leading video-sharing website operator — Youku (NYSE: YOKU) — is trading 8% lower.
  • Renren (NYSE: RENN), the company behind country’s top social networking website, is suffering a 5% decline.

Sympathy plays make sense when bad news for one particular company can be translated into weakness for its sector. However, how does a single SEC investigation — one that won’t be resolved right away — at New Oriental have to do with the fundamentals elsewhere?

I’d shake my head, but overreactions also spell opportunities for nimble investors looking for attractive entry points into dynamic growth stocks.

If you’re in the market for some high yielding ASX shares, look no further than our “Secure Your Future with 3 Rock-Solid Dividend Stocks” report. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

 More reading

The Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Rick Aristotle Munarriz, originally appeared on fool.com

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.