Everything's bigger in China.
They've got the biggest population. The most Internet users. Arguably the world's tallest working skyscraper. And then there's New Oriental Education and Technology Group (NYSE: EDU).
China's biggest private educator just reported its end-of-quarter results, and the results are, well, plain dumbfounding. Roughly 837,700 students enrolled in various programs, a number 20% larger than the year-ago quarter's showing. For comparison, that's more than twice as big as America's biggest for-profit educator, Apollo Group (Nasdaq: APOL).
Bigger and better
To dwell on the "bigness" theme, let's look a bit closer at New Oriental's second-quarter numbers:
- Total student enrollments in the company's flagship language and test prep courses grew 13% year over year.
- Revenue rose 54%.
- Operating efficiencies resulted in an expanding operating margin.
- The bottom line surged 58%.
If New Oriental were located anywhere other than in China, numbers like those shown above might well have sent the stock soaring. So why did the stock instead fall 7% yesterday?
Because everything is supposed to be bigger in China
It's a given. A truism. So when New Oriental reported its numbers, I suspect investors focused less on their bigness, and more on the worry that they didn't grow as much as they did three months ago.
But that worry (if it's the reason for the sell-off) would be misplaced. As CEO Michael Yu pointed out yesterday, the company's fiscal second quarter "is typically the slowest quarter of our fiscal year." What's more, CFO Louis Hsieh tells us that the company has already seen "a strong enrollment pick-up for the first six weeks of our third fiscal quarter ... with enrollments up 34%." I see little reason to doubt analysts' projection of better than 30% long-term profits growth.
Of course, that kind of growth comes at a price. At a trailing P/E of 33, the company is commanding a premium to U.S.-based ITT Educational (NYSE: ESI) or DeVry (NYSE: DV), though not as much of a premium as local rival ChinaEdu (Nasdaq: CEDU).
The lesson doesn't have to end here. To gain a more in-depth perspective on this recommendation, pick up a free 30-day copy of Motley Fool Global Gains on your way out of class.
Class, open your textbooks:
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