Tao Value, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A return of +3.96% was delivered by the fund for the Q1 of 2021. Below the MSCI All Country World Index that delivered a +4.88% return for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Tao Value, in their Q1 2021 investor letter, mentioned TAL Education Group. And shared their insights on the company. TAL Education Group is a Beijing, China-based educational technology company that currently has a $34.4 billion market capitalization. Since the beginning of the year, TAL delivered a -20.36% return, while its 12-month gains are up by 14.13%. As of April 29, 2021, the stock closed at $58.64 per share.
Here is what Tao Value has to say about TAL Education Group in their Q1 2021 investor letter:
“TAL Education is a new position in “Mindful Compounder” category. It is a leading after school tutoring provider, going through a structural offline to online transition. It was also impacted heavily by the recent looming regulation change related to after school tutoring.
On meteorology factor, TAL similarly enjoys a growing spending power of households across the country and has long growth runway. It has compounded its revenue by 45% over the past last decade.
TAL is also undoubtably the leader in education quality, highly regarded by parents (for its results) and loved by students (for its fun & intriguing learning experiences).
CEO TAL Education most mindful leaders
The founder CEO Zhang Bangxin is among the most mindful leaders that I have studied, and is a key reason for me to buy in. Over the years, Zhang had made many seemingly drastic but deeply rational decisions, a key pattern I look for.
For example, Zhang decided early on that parents can test attend any class and ask for pro-rated refund anytime, a rare but “right” practice among all after-school tutoring organizations. On expansion to new subjects, he also intentionally took it very slowly because that is the only right way to grow while maintaining high quality education.
One famous core value of integrity Zhang instilled to all teachers is that: “Not teaching your students well is equivalent to steal or robbery.” Zhang shows deep understanding of the nature and risks of commercialized education. I believe he has the right mindset and execution ability to lead TAL to do very well under any circumstance.
TAL Education is undergoing a transition from offline to online
TAL is undergoing a transition from offline to online (or OMO, offline merge online), accelerated by COVID. This requires heavy investment in technology & infrastructure, leading to a change of its margin profile & profitability.
It also faces deep pocket VC backed online-native competitors like Yuanfudao & Zuoyebang. However, I believe that education in its essence is a human (or I should even say “soul”) services which technology helps to deliver, and that TAL’s long time accumulation of know-how and practices will help them succeed through such transition.”
Our calculations show that TAL Education Group does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, TAL Education Group was in 29 hedge fund portfolios, compared to 41 funds in the third quarter. TAL delivered a -25.92% return in the past 3 months.