GSX Techedu's (NYSE:GSX) stock recently soared to an all-time high after the Chinese online education company dazzled investors with its fourth-quarter numbers. Its revenue surged 413% annually to 935 million yuan ($133 million), beating estimates by about $12 million.

On the bottom line, its net income rose 659% to 174.5 million yuan ($25 million). On a non-GAAP basis, its net income grew 617% to 197.8 million yuan ($28 million), or $0.10 per ADS -- which cleared expectations by two cents.

A textbook transforming into a laptop.

Image source: Getty Images.

For the full year, GSX's revenue and non-GAAP net income rose 432% and 1,021%, respectively. Those massive growth rates explain why the stock surged more than 300% since its public debut last June -- despite all the market noise regarding the trade war, tariffs, China's economic slowdown, and the coronavirus outbreak.

But even after that meteoric rise, GSX still trades at 8 times forward earnings. Does that low valuation indicate that GSX is an undervalued growth stock which could generate even bigger multibagger returns?

Tracking GSX's growth

GSX operates a live streaming platform that enables instructors to reach up to 100,000 students per session. It hires its own certified teachers instead of freelancers, and it claims to hire fewer than 2% of its applicants. GSX also develops its own in-house curriculum instead of relying on third-party materials.

GSX claims that the "significant imbalance of education resources between urban and more remote areas in China" will fuel its long-term growth. It also noted a major jump in online enrollments as schools remained closed during the coronavirus outbreak.

GSX's total enrollments rose 290% annually to 1.12 million last quarter as its non-GAAP gross margin expanded from 68.3% to 79.7%. For the full year, its total enrollments rose 258% to 2.74 million, and its non-GAAP gross margin jumped from 64.1% to 75.4%.

Those growth rates look rock-solid, but investors should note that its revenue growth accelerated for the full year as its gross billings decelerated:

YOY growth

FY 2018

FY 2019

Revenue

307%

432%

Gross billings

438%

413%

YOY = Year-over-year. Source: F-1 and quarterly filings.

GSX defines gross billings as the total amount of cash it receives after it deducts refunds. Since GSX offers complete refunds on unattended classes, its deceleration in billings growth suggests that a growing number of students aren't completing entire courses. During the conference call, GSX CFO Shannon Shen also admits that a "large lot" of its new enrollments during the quarter came from promotional and free offers.

That strategic shift indicates that GSX faces tougher competition in the online K-12 education market from rivals like New Oriental Education, TAL Education, Tencent's Penguin Tutoring, and YouDao -- as well as start-ups like Yuan Fu Dao, Zuoyebang, and VIPkid.

Shen also noted that GSX's operating margins will be weighed down by massive summer promotions throughout the second and third quarters of 2020, but didn't offer any revenue, margin, or earnings guidance for the full year. It expects its revenue to rise 303%-311% annually in the first quarter of 2020, while analysts expect its revenue and earnings to rise 166% and 144%, respectively, for the full year.

High growth rates but an uncertain future

GSX's stock is certainly undervalued relative to its growth, but it remains throttled by concerns about the increasing competition and its growing dependence on promotional offers. GSX's decision to allow "certain" shareholders to sell 15 million shares in a secondary offering last November also raises eyebrows.

Those concerns are all valid, but I think GSX could still climb higher as the online education market expands amid the coronavirus outbreak. The ride might be bumpy, but it's still a good speculative play for investors who can stomach the volatility.