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Why New Oriental Educational Stock Gained 17% Last Month

By Jeremy Bowman – May 11, 2020 at 10:39AM

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The Chinese education stock rose on a solid earnings report and some analyst endorsements.

What happened

Shares of New Oriental Educational & Technology Group (EDU 4.43%) were climbing higher last month after the Chinese provider of tutoring and test-prep services reported better-than-expected earnings in its third quarter, and benefited from a number of positive analyst notes in the period. According to data from S&P Global Market Intelligence, the stock finished the month up 17%. 

The chart below shows the gains throughout April.

EDU Chart

EDU data by YCharts.

So what

New Oriental stock popped 4% on April 7 as it was upgraded to conviction buy from buy at Goldman Sachs. Analyst Christine Cho called out the company's long-term value proposition as China's leading private educational service. The following day, the stock pulled back as rival TAL Education Group revealed fraudulent sales accounting, casting further doubt on Chinese stocks just two months after an accounting scandal at Luckin Coffee was uncovered. Though New Oriental shares fell on the news, it could benefit over the longer term from any perceived damage to its competitor.

A boy sits at a desk in front of a computer

Image source: Getty Images.

Shares swung after the company reported third-quarter earnings on April 21. For the January-March period during the throes of China's coronavirus lockdown, New Oriental reported a 15.9% increase in revenue to $923.2 million, while operating income rose 22.4% and adjusted earnings per share jumped from $0.69 to $0.93. Those results beat estimates as analysts had expected revenue of $918.7 million and EPS of $0.79. Management said that challenges from COVID-19 reduced revenue by 8% to 10% in the quarter, and it also expected lingering effects over the next quarter or two, especially in markets outside of China. 

In the aftermath of the earnings report, the company got a pair of bullish analyst notes as Citigroup reiterated its buy rating on the stock, and CLSA upgraded the stock from to buy from outperform, noting strength in the K-12 business. 

Now what

Even if the pandemic remains a challenge in China and other markets, the education industry seems relatively insulated from the crisis, at least the parts of it that can be done virtually. Though New Oriental may have experienced a setback from the pandemic, the business remains fundamentally sound and continues to grow. 

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Luckin Coffee Inc. and TAL Education Group. The Motley Fool recommends New Oriental Education & Technology Group. The Motley Fool has a disclosure policy.

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Stocks Mentioned

New Oriental Education & Technology Group Inc. Stock Quote
New Oriental Education & Technology Group Inc.
EDU
$26.14 (4.43%) $1.11
TAL Education Group Stock Quote
TAL Education Group
TAL
$5.35 (8.30%) $0.41
Luckin Coffee Inc. Stock Quote
Luckin Coffee Inc.
LKNC.Y
$16.67 (2.65%) $0.43

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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