Since October, shares of New Oriental Education (NYSE: EDU) have doubled, inflating its market cap to a hefty $1.7 billion. While its stock may not necessarily repeat that stellar performance, the company's growth opportunity still appears to be in its early stages.
New Oriental is China's market leader in private education. The company primarily provides English classes and test preparation.
Fiscal third-quarter revenues spiked 51% to $33 million, and net income rose a whopping 543.5% to $8.4 million. New Oriental posted an 8% increase in student enrollment, to 199,100; the company also benefited from a late Chinese New Year, giving students more time to attend courses.
With $176 million in the bank, New Oriental plans to further expand its footprint, building more learning centers, developing content offerings, and investing in the brand. That's a smart strategy. As Starbucks (Nasdaq: SBUX) and Coca-Cola (NYSE: KO) demonstrate, it's much easier to maintain premium pricing and attract more customers when your brand is foremost in potential buyers' minds. Don't assume that New Oriental will spend money recklessly, though; the company has a history of balancing growth and profitability.
New Oriential's hub-and-spoke structure is a crucial key to its strategy, letting the company leverage shared administrative resources and content across all its schools and learning centers. As a result, it only experienced a 2.3% increase in general and administrative expenses, to $8.4 million, in the third quarter.
New Oriental enjoys an undoubtedly massive market opportunity. China's growing middle class exceeds 100 million, and the company only controls about 3% of its market. With its cash position, branding campaign, and strong operating model, the company should push growth for years to come.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 2,719 out of 25,386 in CAPS.
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