New Oriental Education & Technology (EDU 5.91%) shareholders beat a surging market this week. The Chinese education services specialist's shares rose 17% through Friday afternoon trading, according to data provided by S&P Global Market Intelligence, compared to a 4% surge in the S&P 500. That rally added to a head-turning rebound for the stock, which is up 28% so far in 2022 after having been down by nearly 60% in early May.
It was powered by a well-received earnings update from the management team.
New Oriental on Wednesday announced fiscal fourth-quarter results for the period that ended in late May. Sales fell sharply as the company reduced its footprint in some areas while expanding more deeply into some established markets in big Chinese cities. The closure of some learning centers was part of a wider restructuring plan aimed at reducing costs and aligning the company more closely with government regulations around for-profit teaching services.
Expenses dove by 57%, in fact, and New Oriental is sitting on over $4 billion of cash. "We maintained a strong cash position throughout the whole restructuring process," CFO Stephen Zhihui Yang said in a press release .
Management said in a conference call with Wall Street analysts that they are optimistic about new growth initiatives, including non-academic tutoring and study tours. Investors were happy to hear that the restructuring process is essentially complete now and that the company expects to remain profitable in fiscal 2023 even though sales will drop roughly 50% due to the smaller footprint of learning centers.
Investors might want to wait for more evidence of a return to growth on the way before investing in this international stock. In the meantime, the stock might see more volatility as shareholders look for clarity around New Oriental's earnings potential going forward.