Will GSX Shares Rally With The Re-Emergence Of COVID-19?

GSX dealt with the allegations of fraud with confidence and denied all allegations. The company said in September 2020 that the SEC’s enforcement division has asked it to produce financial and operating records dating back to the beginning of 2017. 

Concerns 

  • The SEC in the United States launched the 'Whistleblower Award' program in 2010, awarding 10%-30% of the amount involved in the case to those who successfully provided useful evidence. With the incentive of huge rewards, GSX insiders might report the company’s fraudulent behavior.

  • Since the online education competition was fueled by COVID-19, some technological giants also want to enter the market.

  • Nearly 300 million students and teachers used Alibaba's Dingding during the lockdown. 

  • GSX will not have any advantages among the major educational startups, as those firms have raised a lot of capital before their IPOs and accumulated a huge number of students. The other firms have gone ballistic with their marketing, charging almost the same or even lower course prices than GSX with better services. Once these firms complete their IPOs, GSX will lose its position and face a significant drop in its stock price and market value. With multiple accusations and law firms tracking every move of the company, investors will opt for safer stocks, such as Zuoyebang and Yuanfudao.

  • Another challenge for GSX is to improve its image after being targeted by short-sellers 12 times since the beginning of 2020.

Bottom line

The company has benefited from the measurements taken to prevent the spread of COVID-19. These national policies have driven millions of Chinese students to online schooling, fitting directly into GSX’s business model. The company’s shares have risen over the past year due to the pandemic. However, with the firm being shortened multiple times, its brand image is concerning. There is currently a shortage of competitive advantages in GSX, and it is believed that its growth is unsustainable with its fragmented management.

Any other short selling in the future by firms such as Muddy Waters will directly affect the share price and lead to a sharp decline.

In addition, with competitors looking for an IPO by the end of this year, it will put even more pressure on GSX. 

Another concern is the company's fiscal performance, as it reported losses for the first time since its listing. 

Investors should not be fooled by the current surge of share prices and they should wait until GSX settles the battle between short-sellers and long-term stockholders.

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Disclaimer: Please consult your own advisor before making any investment decision. 

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