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Why Shares of New Oriental Education Group Gained 10% Last Month

By Jeremy Bowman - Nov 1, 2019 at 6:32PM

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The response to its earnings report was surprising.

What happened

Shares of New Oriental Education and Technology Group ( EDU 0.00% ) tacked on 10% last month according to data from S&P Global Market Intelligence. The stock was mostly quiet throughout the month, then whipsawed after its earnings report, and ultimately finished higher as rival TAL Education Group posted strong revenue growth in its earnings report.

The chart below shows how the stock moved sharply following its report.

EDU Chart

EDU data by YCharts.

So what

In its first-quarter earnings report, New Oriental showed 24.6% revenue growth to $1.07 billion, which matched estimates, while operating income jumped 52.6% to $246.2 million and adjusted earnings per share rose from $1.16 to $1.44, beating expectations at $1.38. 

An Asian boy looking at a computer in school

Image source: Getty Images.

Enrollments in the quarter jumped 50.4% to 2.61 million, and executive chairman Michael Yu noted, "The K-12 after-school tutoring business continued to be our key growth driver, and achieved a year-over-year revenue growth of approximately 35%, or 40% if measured in renminbi [yuan]."

Shares initially fell 7% on the report, even though the company beat earnings estimates, but rose 11% over the next two sessions as the stock recovered after Tal delivered strong revenue growth in its report. New Oriental's rival in after-school tutoring in China posted better-than-expected revenue growth in its second-quarter report and offered bullish guidance for the current quarter, signaling strong demand for tutoring services.

Now what

New Oriental shares have now more than doubled this year on strong revenue growth. The sector seems to be immune to the vicissitudes of the Chinese economy and the trade war because demand for education is recession-proof. 

Looking ahead to the current quarter, the company continues to expect revenue to accelerate again, improving to a range of 26% to 29%. If it can continue to boost top-line growth, the stock could move even higher.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

New Oriental Education & Technology Group Inc. Stock Quote
New Oriental Education & Technology Group Inc.
EDU
$2.06 (0.00%) $0.00
TAL Education Group Stock Quote
TAL Education Group
TAL
$4.99 (-0.40%) $0.02

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