New Oriental, An Education Stock One Might Want To Bet On Now

Although the firm is currently valued below its peers GSX and TAL, we believe EDU is exceptionally positioned in the industry. We tag it as a stock to consider launching a position in.

Empty classroom

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New Oriental Education

Founded in 1993, New Oriental is the largest and oldest private education service provider in China. The firm's business breaks down into a few segments, the most fundamental offering after-school tutoring sessions for middle and high school students to prepare them for High School (zhongkao) or College entrance examinations (gaokao). The company provides small-scale or one-on-one class settings to better customize teaching methods for individual students.

According to the company's FY 2020, about 5.3 million students were enrolled in these classes. There are many types of test preparations, especially foreign entrance exams as follows but not limited to - SAT, SSAT, ACT, GRE, GMAT, LSAT, IELTS and TOEFL. There are also after-school tutoring courses for children and online courses. For instance, Koolearn and Donut classroom are the two main online websites operated by New Oriental. The company also operates 'interactive after-school tutoring courses' (DFUB), an online tutoring website, in lower-tier cities. These segments generate the most of the company's revenue.

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The firm is also the first Chinese education stock to get listed in the US in 2006. It started off at a mere USD 6 per share. As of February 22, 2021, it stands at about USD 193 per share with a market capitalization of USD 33 billion. Since 2010, New Oriental's revenue has reached USD 3.5 billion, an increase of almost 10 times. The company has remained profitable with a positive cash flow throughout this period. While the company is still solidly profitable with continued growth, cost management is a risk factor for investors to consider before purchasing its stock. 

New Oriental decided to return to China with a secondary listing on the Hong Kong stock market in October 2020. 

The firm's shares recorded a rather good performance on its first day of listing on the HKEX. The stock opened at HKD 1,381, approximately 16.1% higher than the offer price of HKD 1,190; they then closed at HKD 1,365, up approximately 14.7% against the offer price. 

Post COVID-19 recovery

2020 was destined to be an unforgettable year for the education and training giant, New Oriental. The social distancing complaint forced offline learning institutes to shut down for a year, hammering the education industry heavily. Meanwhile, major educational institutes started to expand online businesses in this ever-changing climate during the pandemic. 

Before the Spring Festival, New Oriental released its 2021FYQ2 results. Benefiting from business recovery in the 2020 fall, New Oriental's net income was USD 888 million, a year-on-year increase of 13.1%. In total, the firm enrolled 4,183,100 students, a year-on-year increase of 10.40%. Although New Oriental's enrollment number was higher than that of TAL, New Oriental's growth rate inevitably declined.

  • OMO, an important strategy

With New Oriental's rapid development in its online-merge-offline (OMO) businesses, it achieved a 20-25% capacity expansion, alongside the company looks well-positioned to gain market share going forward. Given the prospects for industry consolidation post-COVID-19. 

New Oriental CEO Zhou Chenggang explained, "The OMO strategy, together with localized and differentiated teaching content, can effectively increase the number of applicants and income at a lower cost, allowing us to further seize more market opportunities and increase the company's long-term profitability." 

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Author: Qasimkhan Editor: Luke Sheehan, Zhiqing Chen 

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Corey Gaber 1 month ago Member's comment

Very interesting suggestion, thanks for the tip.