New Oriental Education Delivering 30% Growth

/ By / EDU
Stock (Symbol)

New Oriental Education (EDU)
Stock Price

$84
Sector
Food & Necessites
Data is as of
December 3, 2018
Expected to Report
Jan 15
Company Description
New Oriental Education & Technology Group Inc. is a provider of private educational services in China. EDU operates through 7 segments, which include language training and test preparation, primary and secondary school education, online education, content development and distribution, pre-school education, overseas study consulting services and study tour. Source: Thomson Financial
Sharek’s Take
David SharekNew Oriental Education (EDU) has multiple avenues of expansion and is expected to keep growing profits 30% a year long-term. New Oriental Educations is China’s largest private education provider teaching almost 5 million students with 22,000 teachers in more than 899 learning centers (up from 771 a year ago) in 65 cities, in addition to an online network of approximately 17 million students. Product offerings are divided into seven areas:

  • Test Preparation — courses to students taking entrance exams used by schools in China and the US including SAT, ACT, GRE and GMAT.
  • K12 After School Tutoring — courses for middle and high school students to help get students compete to get into top schools.
  • After-School Tutoring for Children — EDU’s “Pop Kids” program teaches English, math, Chinese, writing, music and arts for kids in kindergarten and elementary schools.
  • Language Training Courses for Adults — English training as well as foreign languages. Many employers in China require a high level of English proficiency with employees.
  • Primary and Secondary School — EDU has a private and secondary school in Yangzhou with a full curriculum taught in Chinese and English, with an emphasis on English language training.
  • Educational Content — EDU develops books, software, CD-ROMs, magazines and other periodicals.
  • Online Education — programs on www.koolearn.com and www.koo.cn with free and paid content.
  • Other Services — overseas studies consulting, pre-school education, co-op schools operated at businesses, and overseas study tours.

EDU possesses strong sales and profit growth. The company had revenue climb an astounding 30% a year from 2007 to 2017 with record sales each year. Sales are also expected to climb 30% this year. Profits grew 33% last year, are expected to climb 22% this year, then 36% next year and 33% the year after that. New Oriental Education is one of the top growth stocks in the market today. It’s a company capable of growing both profits and its stock price 30% a year. 
One Year Chart
Last qr New Oriental had sales growth of 24% with enrollment growth of 16%. Profits grew just 15% on the biggest qtr of the year (Fall semester). EDU missed estimates for the 2nd time in 2 qtrs, but profits had been growing briskly. That’s likely to continue, as Estimates are for 71%, 37%, 32% and 23% profit growth the next 4 qtrs. But qtrly and annual estimates all declined last qtr. The P/E of 37 makes the stock a bit overpriced, but just by a little as the stock has a solid Est. LTG of 32% a year.
Fair Value
My Fair Value is a P/E of 35, which makes the stock fairly valued here (today EDU is $85, these charts and tables were done on 8/1 when the stock was $78). Upside to 2018 is excellent, and gives the stock very good potential.
Bottom Line
New Oriental has been on a run lately, but had some catching up to do after many years of going nowhere. Education in China is thriving, and EDU is the leader in the space. This stock ranks 18th in the Growth Portfolio Power Rankings. I’m considering EDU for the Aggressive Growth Portfolio, but it’s slightly overvalued right now.
Power Rankings
Growth Stock Portfolio

18 of 38

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A

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