We have had good success following Chase Coleman III’s Tiger Global in the past and this week, we again added a top holding from the hedge fund to our portfolio: TAL Education (NYSE: TAL), a leading operator in a booming industry in China: private tutoring.

In China, the job market is very competitive, and a prestigious degree from top universities could make an immense difference in the types of jobs the graduates get and the career paths they follow. In order to have a chance at competitive universities, all Chinese students—except a small percentage considered to have exceptional talents (they get a free pass)—must take and perform well at the annual National College Entrance Examination (known as “gaokao” in Chinese), usually in their final year of high school. Besides the gaokao, middle-school students also need to take an exam to enter high school.

The gaokao is considered to be the most difficult exam in the world. The exact length and content of the exam varies by province, but generally lasts about nine hours over two days and consists of a number of subjects, including English. Only about 60 percent of exam takers pass and far smaller percentage make it into top universities—the top-two universities accepted less than 6,700 total students in 2016, out of the 9.3 million hopefuls (a rate of 0.07 percent) who took the gaokao. It’s not uncommon for students to spend their entire senior year preparing for this exam, including most waking hours—in school and at home—studying.

In a culture that greatly values education and academic achievement, parents feel pressure to partake in the education arms race. After all, if many other students are getting extra help, then not getting tutoring for their kids would put them at a disadvantage. Many children begin receiving tutoring as early as primary school. A common Chinese saying nowadays goes: “don’t let your child lose the race at the starting line.” As the population becomes more affluent and the middle class expands, parents are spending more money to get their kids as much extra academic help as possible as early as possible, a boon for tutoring businesses such as TAL.

The company offers three class formats: small classes (84 percent of revenues), personalized premium services (11 percent), and online courses (5 percent). Its core academic subjects include math, English, Chinese, physics, chemistry, and biology, key subjects to prepare for the gaokao. TAL (which stands for “Tomorrow Advancing Life”) enjoys strong word of mouth, branding, and robust demand. As of the end of the first quarter of fiscal 2018 (ended May 31), TAL had deferred revenues of nearly $1 billion, a year-over-year growth of 72 percent. Deferred revenue is primarily tuition parents prepaid to reserve spots on TAL’s summer and fall classes.

At the end of May, TAL owned 567 learning centers in 35 cities. This marks an addition of 60 centers and 5 cities during the February-to-May quarter. Student enrollment in the quarter grew by 62 percent to 1.05 million compared to a year ago, which drove the revenue increase of 65 percent, to $321.9 million. Compared to one year ago, the number of centers and cities grew by 172 and 10, respectively. (For the previous year, fiscal 2017, the total enrollment was 3.93 million, 70 percent higher than fiscal 2016.) The company could reach 1,000 learning centers within three years.

On the flip side, operating expenses are rapidly growing as well, due to the cost of opening and operating new centers, hiring more staff, and more marketing activities and promotions to further enhance its brand. However, based on the rapid increase in enrollment, adjusted net income rose by 82.5 percent.

Although TAL is already growing at a very fast rate, there’s more upside. Its geographical penetration is still low so there’s opportunity to continue to expand into new markets. What’s more, the size of the Chinese tutoring market is expected to double within five years.

Online classes, currently only a small contributor to TAL’s revenues, has been growing at about 67 percent a year since launching in fiscal 2010. That growth accelerated to 90 percent in fiscal 2017 (March 2016-February 2017) with the introduction of a live-lesson-broadcast feature. Online classes are not subject to geographical distance and class-size limitations or transportation time and money costs, and online tutoring can also utilize data collection to analyze students’ strengths and weaknesses and optimize the coursework for better effectiveness, so there could be plenty of potential upside here as well.

Unless the Chinese government decides to reform its educational system in a way that negatively impacts tutoring businesses—such as nationally reducing the importance of exams or passing law to limit how much tutoring companies can charge—we expect for the foreseeable future the demand to continue to grow as the middle class expands and more and more children compete for prestigious spots in universities.

On Friday, the stock had a large drop together with the other Chinese tutoring stock in Tiger Global Management on no news and high, but not anomalously high, trading volume. We are researching to see whether it’s a case of profit taking or if there’s any fundamental change. We will provide more updates in the near future. This looks to be more likely a price correction, creating a buying opportunity than any meaningful change in the company’s growth trajectory. We will provide more updates once we discover more information.