China, the world's most populous nation, has a growing demand for after-school tutoring, foreign language training, and test prep across all subjects. This is good news for investors seeking companies with both a history and a future of strong growth and demand. 

In China, students attend their state-run school, then participate in supplemental educational programming at a local tutoring center. Financier and philanthropist Michael Milliken, as quoted by EdSurge, notes that Asian families spend as much as 15% of their income on these services, compared with the 2% American families spend. And it's not just something wealthy families prioritize. The country's Five-Year Plan explicitly encourages entrepreneurship and innovation and outlines the need to strengthen exam and recruitment reforms and promote higher education. 

Group of students gathered around a laptop.

Image Source: Getty Images.

Investing in strong companies such as New Oriental Education and Technology Group (NYSE:EDU) that support education here is a smart move, and not just for the edtech companies looking to take advantage of this huge market and national focus.

New Oriental Education is the largest provider of private educational services in China. Since 1993, over 44.8 million students have enrolled in one of its courses, including 8.4 million in fiscal 2019 alone. Its network spans 83 cities in China. Nationwide, over 33,900 teachers provide instruction via 1,233 learning centers, including 95 schools, with more opening each year. EDU extends its reach to consumers through 15 bookstores and 160 third-party distributors. It's easy to see why EDU is one of China's most recognized and trusted educational brands.

A cradle-to-career business model

EDU's strong brand loyalty and opportunities to enroll students over multiple generations, from "cradle to career," coupled with decreasing student acquisition costs make this a company worth watching. Parents can enroll children as young as three years old in EDU's English, Chinese, math, music, and art classes and continue their enrollment through middle and high school as programs of study get more technical at each successive level. EDU's test prep strand encompasses high school and college entrance exams, as well as Adult Practical English, but the company's offerings don't stop here.

For EDU, "vocational training" -- which in the U.S. often means automotive repair, cosmetology, HVAC, and welding -- is focused on marketing, accounting, and HR, among other professional occupations.This comprehensive slate of courses supports China's rapid economic development by preparing students at all levels to be productive members of Chinese society.

What the numbers say about EDU

Over the past 12 months, EDU's stock is up 48% and has increased 372% over the past five years. Over the past two years, the company's annual revenues rose from $1.48 billion in 2016 to $3.096 billion in 2018, for a compound annual growth rate (CAGR) of 44%.

EDU's 3-year earnings per share (EPS) growth rate is a healthy 20%. In 2016, EDU's EPS was $1.43. By 2018, EPS had risen $0.44 per share to $1.87. EPS growth gives a good picture of the rate at which a company has grown its profitability and, therefore, its value to investors. Looking ahead, EPS is estimated at $3.41 (+32%) for 2020 and $4.48 (+31%) for 2021.

According to the company's earnings report released on July 23, 2019 for its fourth fiscal quarter, ending May 31, 2019, YoY net revenues increased by 26.5%, and YoY student enrollments increased by 32.4%. EDU's key drivers of this robust growth are its K-12 after-school tutoring business and its POP Kids program for younger children. YoY revenue growth for these two programs were 28.5% and 31%, respectively. This bodes well for its future growth, as brand loyalty will keep many students coming back as their needs for additional test preparation will increase as they move through the grades and into college and career.

For the longer term, keep your eyes on EDU. The company will announce its 2020 Q1 financial results later this month.