With a daily gain of 2.6% and a 3-month gain of 50.62%, New Oriental Education & Technology Group Inc (EDU, Financial) has been performing well in the market. The company has an Earnings Per Share (EPS) (EPS) of 1.1, but the question remains: Is the stock modestly overvalued? This article aims to provide a comprehensive valuation analysis of the company. Keep reading to understand the intrinsic value of New Oriental Education & Technology Group (EDU).
Introduction to New Oriental Education & Technology Group Inc (EDU, Financial)
New Oriental Education & Technology Group Inc (EDU) is a leading private education provider in China. The company has shifted its focus to nonacademic tutoring and intelligent learning systems after terminating its K-9 academic after-school tutoring business due to regulatory crackdown in 2021. It also owns 55.7% of East Buy (HKG: 01797), a market leader in livestreaming e-commerce. As of September 26, 2023, the stock price of the company is $56.08, while the fair value according to GF Value is $50.11, indicating that the stock might be modestly overvalued.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
The GF Value of New Oriental Education & Technology Group (EDU, Financial) suggests that the stock is modestly overvalued. This could mean that the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength of New Oriental Education & Technology Group (EDU, Financial)
Assessing the financial strength of a company is crucial before investing. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are key indicators of a company's financial strength. New Oriental Education & Technology Group (EDU) has a cash-to-debt ratio of 8.72, which is better than 72.44% of 254 companies in the Education industry. The overall financial strength of New Oriental Education & Technology Group (EDU) is 7 out of 10, indicating fair financial strength.
Profitability and Growth of New Oriental Education & Technology Group (EDU, Financial)
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. New Oriental Education & Technology Group (EDU) has been profitable 9 over the past 10 years. The company had a revenue of $3 billion and Earnings Per Share (EPS) of $1.1 over the past twelve months. Its operating margin is 6.34%, which ranks worse than 52.94% of 255 companies in the Education industry. Overall, the profitability of New Oriental Education & Technology Group (EDU) is ranked 7 out of 10, indicating fair profitability.
Growth is an essential factor in the valuation of a company. The 3-year average annual revenue growth of New Oriental Education & Technology Group (EDU, Financial) is -9%, which ranks worse than 80.26% of 233 companies in the Education industry. The 3-year average EBITDA growth rate is -35.7%, which ranks worse than 93.44% of 183 companies in the Education industry.
ROIC vs WACC
Comparing the return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way to determine a company's profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, New Oriental Education & Technology Group's return on invested capital is 5.2, and its cost of capital is 4.98.
Conclusion
In conclusion, the stock of New Oriental Education & Technology Group (EDU, Financial) shows every sign of being modestly overvalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 93.44% of 183 companies in the Education industry. To learn more about New Oriental Education & Technology Group stock, you can check out its 30-Year Financials here.
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