Luckin Coffee crisis is starting to affect more US listed Chinese companies.
Tumbling stocks. Image credit: Jason Briscoe/Unsplash
► A month full of turbulence for GSX stocks.
► US law firms want GSX to compensate investors.
According to 36kr, as many as 16 US law firms have initiated class actions to investigate the recently USD 10 billion valued Chinese education company, for exaggerating profitability. The survey focused on whether the company overstated indicators such as profitability, income, student enrollment, and teacher qualifications, or did not disclose information related to investors.
The law firms claim that investors who bought GSX stocks since it went public, have the opportunity to receive compensation, and encouraged investors who lost more than USD 100,000 to apply for the compensation.
It was all going good for the NYSE-listed firm as it saw its stocks rise almost 10% to as high as USD 44.98, pushing its market value to over USD 10 billion back on February 22, 2020. That didn’t last for long – after reaching its record high, it fell 3.96% to USD 43.3 the following day. To further worsen the situation, on February 26, Grizzly Research, a research firm that produces differentiated research insights on publicly traded companies, released a 50-page report, ‘Why We Believe GSX Techedu is the Worst Publicly Traded Education Company.’ The firm really took a hit on April 14, after short-seller Citron said it's ‘the most blatant Chinese stock fraud since 2011.’
Seven law firms, Schall, Frank R. Cruz, Howard G. Smith, GlancyProngay & Murray, Hagens Berman, LabatonSucharow, Holzer&Holzer, all filed a class-action lawsuit within the next day after the release of the Citron Report.
The reason why Citron has a bigger name than Grizzly research is that the later report had a greater impact as compared to the first. Another reason might be related to the trust crisis of the Chinese stock market caused after Luckin Coffee’s huge transaction fraud was exposed.
GSX was quick to respond as on April 15, Chen Xiangdong, its founder, chairman and CEO, responded in an official statement, by saying “Time will soon prove everything,” and that Citron did not understand the company's business operations.
Annual report data of the GSX techedu also encountered market doubts. Forcing the company to hold media communication conference. At the conference, GSX disclosed to investors detailed company data in multiple dimensions, including cash. The firm disclosed the distribution of cash and cash equivalents, short-term investment and long-term wealth management investment.
After holding a conference for consecutive days from April 8 to 9, GSX saw its stock price surge 8.8% to USD 33.16.
It is worth noting that the share price of education stocks fell across the board. Youdao (DAO: NYSE) and New Oriental (EDU: NYSE) also saw their stocks plunge.
TAL (TAL: NYSE) another major education stock, has also become the subject of investigations by many US law firms after revealing that an employee conspired with an external supplier to falsify the company’s sales revenue by forging contracts and other documents. As of today (02:36 pm Beijing time), the firms' stocks have fallen to USD 47.39, down by 4.84 %.