New Oriental Education & Technology Group (EDU): An Overpriced Gem? A Comprehensive ...
With a daily gain of 4.5%, a three-month gain of 43.1%, and an Earnings Per Share (EPS) (EPS) of 1.1, New Oriental Education & Technology Group Inc (NYSE:EDU) seems to be making waves in the market. But is the stock significantly overvalued? This article aims to answer that question through a detailed valuation analysis. Read on to gain insights into the financial health and prospects of New Oriental Education & Technology Group.
A Snapshot of New Oriental Education & Technology Group Inc (NYSE:EDU)
New Oriental Education & Technology Group is a leading private education provider in China. The company has undergone significant changes following the regulatory crackdown in 2021, shifting its focus from K-9 academic after-school tutoring to nonacademic tutoring and intelligent learning systems and devices. With a current stock price of $65.44 and a fair value (GF Value) of $46.66, the question arises whether the stock is trading at a fair value. The following analysis will delve into this question.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is computed based on historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
According to GuruFocus Value calculation, the stock of New Oriental Education & Technology Group (NYSE:EDU) is significantly overvalued. At its current price of $65.44 per share and the market cap of $10.80 billion, the future return of its stock is likely to be much lower than its future business growth due to its overvaluation.
Financial Strength of New Oriental Education & Technology Group
Assessing the financial strength of a company is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. New Oriental Education & Technology Group has a cash-to-debt ratio of 8.72, which is better than 72.55% of 255 companies in the Education industry. The overall financial strength of New Oriental Education & Technology Group is 7 out of 10, indicating fair financial health.
Profitability and Growth of New Oriental Education & Technology Group
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. New Oriental Education & Technology Group has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $3 billion and an EPS of $1.1. Its operating margin is 6.34%, which ranks worse than 53.13% of 256 companies in the Education industry. Overall, GuruFocus ranks the profitability of New Oriental Education & Technology Group at 7 out of 10, indicating fair profitability.
Growth is a critical factor in the valuation of a company. The 3-year average annual revenue growth of New Oriental Education & Technology Group is -7.4%, which ranks worse than 78.63% of 234 companies in the Education industry. The 3-year average EBITDA growth rate is -14%, which ranks worse than 80% of 185 companies in the Education industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, New Oriental Education & Technology Group's ROIC is 5.13 while its WACC came in at 5.08.
Conclusion
In conclusion, the stock of New Oriental Education & Technology Group (NYSE:EDU) is believed to be significantly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 80% of 185 companies in the Education industry. To learn more about New Oriental Education & Technology Group stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
