Here in the U.S., students have only just begun the school year. But over in China, for-profit educator New Oriental Education & Technology Group
What analysts say:
- Buy, sell, or waffle? Ten analysts study New Oriental, giving it eight buy ratings and a pair of holds.
- Revenue. On average, they're looking for 34% sales growth, to $72.1 million.
- Earnings. Profits are predicted to come in at $0.79 per share.
What management says:
CEO Michael Yu pronounced himself "pleased" with New Oriental's fiscal 2007 results back in July. As well he should be -- the company grew its sales by 36%, and its profits several times as much, to $29.6 million. That worked out to $0.83 per ADS, diluted. Perhaps more impressive than either of those numbers, though, was a smaller number: student enrollment grew 22%.
Why is the smaller number the more impressive? Because the fact that sales grew so much faster than enrollment suggests that New Oriental has some serious pricing power. It either succeeded in raising tuition rates, or in selling additional services to students, or both. Now let's see what the firm can do to build on the 22% enrollment growth it experienced during the fourth and final quarter of last year.
What management does:
New Oriental presents us with the usual problem for recent IPOs -- a lack of data. For one thing, our data provider only has enough numbers to crunch out five (instead of our usual six) quarters' worth of rolling results. For another, these numbers contain some major lumps. Most notably, take a look at the big jumps in operating and net margins between last year's quarter ended in May and the one ended in August.
It's too early in this firm's public life to say whether it will be able to maintain the kinds of margins it has been posting lately -- but there is one thing I can tell you: The single-digit margins of firms like Corinthian
|
5/06 |
8/06 |
11/06 |
2/07 |
5/07 |
|
|---|---|---|---|---|---|
|
Gross |
58.3% |
60.4% |
59.5% |
59.7% |
59.5% |
|
Operating |
8.3% |
17.1% |
17.4% |
20.3% |
19.9% |
|
Net |
6.4% |
15.2% |
16.3% |
20.4% |
21.7% |
One Fool says:
More familiar with the company than I am, the globe-trotting value hunters at Motley Fool Global Gains -- who recommended New Oriental to our subscribers back in February -- are mighty impressed with the firm's performance. Writing in response to the company's Q3 report back in April, they observed that earnings "far exceeded our expectations." Analysts Bill Mann and Michael Olsen lauded the "growing demand for classes with fewer students" at New Oriental, and noted "that these clients are much more price elastic. What we see is an important high-level trend: people really want and like the service(s) New Oriental provides."
Echoing that sentiment, fellow Fool Tim Hanson wrote after visiting New Oriental in June that he "came away very impressed with operations. This is the beginnings of a great growth story. EDU is the dominant provider with a very strong and elite brand name."
