Chinese equities have continued to outperform their U.S. counterparts over the past month, as the U.S. copes with the spread of the virus and China looks to be emerging from the outbreak. Although the virus has had an overall strong negative impact on the global economy, it has shed some light on future opportunities.
Education technology, or edtech, is one area that has seen an unexpected boost from the virus outbreak. With a majority of the world’s traditional schools closed due to the outbreak, we are seeing an unprecedented “social experiment,” where a growing number of the global student population is now attending school virtually.
Many experts believe that the coronavirus outbreak will change many aspects of our daily lives and how we interact with each other, in favor of more virtual and remote formatting. This could help provide an even larger and more sustained boost to edtech companies like Meten EdtechX (NASDAQ: EDTX).
As edtech stocks have largely performed well in 2020, Meten EdtechX warrants (NASDAQ: EDTXW) provide a high-risk, high-reward method to capitalize on the Meten-EdtechX merger and Meten’s continued growth in online education services across China.
William Blair: “Edtech Stocks Gain on Virus Opportunity”
Research analysts are beginning to increase coverage on the edtech industry, as the unprecedented growth and exposure as a result of the coronavirus outbreak catches on. Analysts at William Blair are some of the latest to share their thoughts on the industry.
William Blair analyst, Stephen Sheldon, noted that over the medium-term, “this will support the broader adoption of online learning.”
Online education is still a relatively new concept, which has seen a surge in popularity over the past ten years. As online formatting becomes more accessible, efficient, and in some cases cheaper than traditional education, more students may opt for a virtual format.
Terry Weng, an analyst at the Shenzhen-based firm Blue Lotus Research Group, estimates “that 22% of Chinese K-12 students will take part in online tutoring by end of this year, up from 17% in 2019.
According to Frost & Sullivan, China’s online education market is estimated to more than triple to 696 billion yuan ($99.3 billion) in 2023; up from 203 billion yuan in 2019.
EDTXW Warrants: A Speculative Way To Potentially Leverage Returns
Warrants are different than common stock because they are derivatives that give the right, but not the obligation, to buy or sell a security. Warrants can be exercised, which allows the investor to purchase common stock shares at a predetermined price, known as the strike price.
In many ways, warrants carry many similarities to options. However, warrants are issued directly by the underlying company, rather than just listed on an exchange. This allows the company to utilize warrants for capital raises, etc.
Investors should understand the speculative nature of warrants and that it may not be right for their portfolio. With that said, savvy-investors and traders could utilize EDTXW to capitalize on the emerging Meten-EdtechX merger.
Case-in-point, EdtechX common shares, EDTX, are currently up 13.22% during trading on Thursday, March 26, 2020. This is a strong and fantastic gain by any measure. However, looking at the warrants, EDTXW is up around 60% today alone.
With that being said, Meten EdtechX is still in the early stages, with the merger closing just closing recently. Given that Meten has already provided an operational update in February 2020, which showed a strong surge in online student numbers. Meten’s market leadership in adult English Learning Training (ELT) positions the company very well to continue benefitting from not only the Chinese education revolution but the online-growth aspect which is even rosier.
Overall, Meten EdtechX is just starting to become recognized and appreciated by the markets. The common stock is seeing increased volume and trading activity, while its warrants see strong volatile movements. Over the past 6-months, EDTXW has jumped from just above $0.20 to its current price of $0.46. With positive sentiment and market conditions continuing to build, Meten EdtechX is one company to keep an eye on.
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