Hello, I’m Downtown-Deposit your mystical guide into this little-known company, Puxin. Before our journey, I wanted to warn you, the reader, of a few risks associated with this ticker that could make you opt-out, and a quick explanation on why I think they’re manageable.
Many Chinese and emerging markets equities are in PRIME buying opportunities right now. The temporary uncertainty will not remove the importance of the world’s most populated and arguably wealthy country.
Puxin sold off any of its potentially compromising subsidiaries to focus on key competencies that are not being regulated. These include abroad study program management and an Arts program. Both of these markets do not intertwine with public school life and should therefore not be remotely targeted by the regulations.
Now, moving forward…
Puxin Ltd. provides educational services to adolescents in K-12. In the past, Puxin provided educational services in various forms, such as classroom-based after-school tutoring, as well as full-time tutoring for preparation of university entrance exams and art college admission exams, to help students enhance their academic results. As many of you know, the CCP has been introducing dramatic legislation that limited the ability for private tutoring services to continue their business; absolutely devasting some stocks like $NEW.
Before I get into why I think ($NEW) Puxin will run hard, I want to first explain why the price is at its current levels.
To understand Puxin, you must first have a basic understanding of Chinese culture. More specifically, an understanding of the hyper-competitive educational system they have in China which in the past led to a flourishing private tutoring and educational services market. In the CCP’s opinion, having for-profit educational services unreasonably raises the cost of raising children and henceforth reduces birth rates. So therefore they are recently on a crusade against these companies which is unfounded because they will soon realize that the hyper-competitive educational system will remain without tutors, leading people to seek alternatives for achieving their academic dreams. That’s beside the point, however.
Puxin used to provide tutoring and educational services in China and was highly profitable, this led them to IPO at a $17 share price ($0.4 now). Unfortunately, shortly after their IPO, Beijing’s education authorities revealed that after “sweeping investigations” of more than 12,681 after-school tutoring institutions, it found that more than half of them need to “rectify” their business practices and comply with regulatory requirements. This persisted in 2020 when the CCP revealed they had investigated more than 400,000 after-school tutoring institutions. Finally, in 2021 the CCP decided that all private tutoring services needed to become non-profits in order for their “morals” to be intact.
What does this mean for Puxin?
Rather than becoming a non-profit, Puxin chose to sell its after-school tutoring division at a massive loss and focus on its other core areas that are not affected by the legislation. Selling their subsidiaries in this manner greatly impacted their books, but they are still solvent and expanding into their nonregulated or non-Chinese markets. This is primarily its Study-Abroad division and Arts study program. Although both of these don’t sound like much, they are both showing growth of over 25% YoY and margins of 40%!
Just a few days ago, Puxin released their unaudited financial reports for Q2 of 2021 and they showed some very promising key takeaways.
First, they increased their student enrolment by over 21% since the previous year showing healthy growth in the company. What’s most interesting about $NEW is that their market cap is only trading at about $50 per student enrolled at Puxin which is drastically low compared to other firms in the space. Regardless of the students, they are currently trading at 1/5 what would be their earnings if they had not had to liquidate their tutoring services.
Another key factor to consider is that they are actually profitable, despite having to liquidate at a loss a large portion of after-school tutoring service. To be honest, this is better than you can expect from most stocks.
When Puxin finishes liquidating its tutoring service and writing it off as losses, what will remain is a profitable company with real growth vastly greater in size than its current valuation. Their core growth sectors have margins that are 40%, and net income is also growing 90% YoY.
Technicals (Potential Short Squeeze)
$NEW Puxin has been shorted to shit while having a decent amount of intrinsic value that investors just haven’t seen yet. Making them a perfect choice for a squeeze.
Ortex Short Squeeze callout on December 30th
High Percentage of % Float on Loan with rapidly increasing costs to borrow. Also at 100% Utilization.
Bullish reversal on Daily RSI
Weekly RSI moving out of Oversold and ludicrous volume recently
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