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Why GSX Techedu Stock Climbed 24% in February

By Keith Noonan - Mar 9, 2020 at 2:38PM

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The online education stock is up roughly 86% in 2020 even as global markets have come under pressure.

What happened

Shares of GSX Techedu (GOTU 0.00%) rose 24% in February, according to data from S&P Global Market Intelligence. The online education company's valuation climbed thanks to strong fourth-quarter results and stimulus measures initiated by the Chinese government. 

GSX Chart

GSX data by YCharts.

GSX reported fourth-quarter earnings on Feb. 18, and sales and earnings for the period each came in ahead of the market's expectations. In addition to the strong quarterly report, the company's stock was aided by China implementing stimulus measures to boost its economy amid threats from the SARS-CoV-2 coronavirus. 

A young boy using a laptop on top of a table.

Image source: Getty Images.

So what

GSX's fourth-quarter revenue climbed 412.9% year over year to hit 935 million Chinese yuan -- or roughly $134.6 million based on current exchange rates. Its non-GAAP (adjusted) net income climbed by roughly 617% to hit 197.8 million yuan (roughly $28.5 million), and adjusted earnings per share for the period worked out to roughly $0.11. The average analyst estimate had called for the company to post adjusted per-share earnings $0.09 on sales of $122.7 million.

In addition to the strong quarterly results, GSX benefited from Chinese efforts to boost the country's economy and stock market. China's national bank pumped 1.3 trillion yuan (roughly $174 billion) into the country's markets on Feb. 3, and the government implemented a variety of additional initiatives to stimulate its business environment and equities prices. Expectations for additional stimulus measures also elevated Chinese stocks last month, but the impact of the novel coronavirus has dragged equities lower in March.

Now what

Despite sell-offs across global markets, GSX stock is up roughly 1% in March's trading. With the threat of SARS-CoV-2 prompting schools to shut down in some areas, the online education company's stock performance may be reflecting increased appeal for virtual classes. The business has been posting stellar growth and seemingly has a long runway for expansion, and its stock has thus far been mostly sheltered from the impact of the novel coronavirus.

The company expects first-quarter sales to come in between 1.086 billion yuan and 1.106 billion yuan (or roughly $160 million at the midpoint of the target based on current exchange rates). Shares trade at roughly 99 times this year's expected earnings and 11 times expected sales. 

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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