Please ensure Javascript is enabled for purposes of website accessibility

Why New Oriental Education & Technology Stock Jumped This Week

By Demitri Kalogeropoulos – Updated Jul 29, 2022 at 3:24PM

Key Points

  • Sales are on pace to drop by about 50% after the company's restructuring.
  • Management projected continued profitability ahead.
  • The stock might remain volatile until a clear path back to growth emerges.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Wall Street loved the latest earnings update from management.

What happened

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.

So what

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 .

Now what

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.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends New Oriental Education & Technology Group. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.