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TheStreet Open House

The Five Dumbest Things on Wall Street This Week: July 20

Stocks in this article: GDI EDU LIME HBC JPM

4. New Oriental's Bad Education

Be honest. You expected shares of New Oriental Education & Technology Group (EDU - Get Report) to melt down months ago, didn't you? Hey, don't be bashful. We did too.

Look, considering how poorly China-based and education companies have performed separately, it's a small wonder that this combination of the two has traded without incident this long!

Shares of New Oriental sank almost 35% in value on Tuesday after the Chinese education company admitted the Securities and Exchange Commission was snooping around its business. The company said it was first alerted of the SEC's intentions last Friday and the probe is most likely related to its stake in Beijing New Oriental Education & Technology Co..

New Oriental said it plans to cooperate with the SEC in the investigation, but it just goes to show the investor skittishness surrounding China-based stocks in the wake of frauds like Sino-Forest, which just last week said it probably would not defend itself before the Ontario Securities Commission because it's running out of cash.

Likewise, Bridgepoint's (BPI) recent accreditation issues and subsequent collapse also provide a cautionary tale for nervous investors, especially those burnt twice by a nameless Wall Street analyst who reiterated a buy on the stock right before it got smashed for the second time in a week.

Yeah, you folks over at Wells Fargo Securities know who I'm talking about.

Anyway, aside from the SEC investigation news, New Oriental posted some fairly inspiring fiscal fourth-quarter results Tuesday. Net income rose an impressive 14% to $16.3 million from a year ago and revenue jumped 41% to $193.3 million as the number of students enrolled rose 7.7% to 527,000 and the number of schools grew to 664 from 487.

Yep, New Oriental continues to power ahead even as China slows and the dollar strengthens versus the yuan. Unfortunately, even with all that going for it, the company's stock is likely to be dead money until the SEC gives investors the all-clear signal and even then it's going to be hard to regain momentum.

It just proves again how one bad apple spoils the whole bunch and how a bunch of bad apples is sending fed-up investors to the sidelines for good.

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