With a daily gain of 3.52% and a 3-month gain of 18.34%, TAL Education Group (TAL, Financial) is a stock that's getting attention. However, despite its Earnings Per Share (EPS) loss of 0.21, the question remains: is the stock significantly overvalued? This article provides a comprehensive valuation analysis of TAL Education Group, inviting the reader to explore the company's financial health and growth prospects.
Introduction to TAL Education Group
TAL Education Group is a leading provider of smart learning solutions in China. The company has pivoted its focus towards enrichment learning, content solutions, and learning technology solutions, following regulatory changes in 2021. The current stock price is $7.51, while the GF Value, an estimation of fair value, stands at $4.99. This comparison suggests that the stock might be overvalued, but let's delve deeper into the company's financials to get a clearer picture.
Understanding the 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, and future business performance estimates. If the stock price is significantly above the GF Value Line, it suggests overvaluation, and the stock might yield poor future returns. Conversely, if the stock price is significantly below the GF Value Line, it hints at undervaluation, and the stock could offer higher future returns. In the case of TAL Education Group, the stock appears to be significantly overvalued.
As TAL Education Group's valuation is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.These companies may deliver higher future returns at reduced risk.
Financial Strength of TAL Education Group
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's critical to assess a company's financial strength before purchasing its shares. TAL Education Group's cash-to-debt ratio of 18.47 ranks better than 77.17% of 254 companies in the Education industry. Based on this, GuruFocus ranks TAL Education Group's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth of TAL Education Group
Consistent profitability over the long term usually indicates a lower risk for investors. TAL Education Group has been profitable in 6 out of the past 10 years. However, its operating margin of -11.22% ranks worse than 78.78% of 245 companies in the Education industry. Consequently, the overall profitability of TAL Education Group is ranked 5 out of 10, indicating fair profitability.
Growth is a critical factor in a company's valuation. The 3-year average annual revenue growth of TAL Education Group is -33.8%, which ranks worse than 91.45% of 234 companies in the Education industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 184 companies in the Education industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can provide insights into its profitability. If the ROIC is higher than the WACC, it implies that the company is creating value for shareholders. For the past 12 months, TAL Education Group's ROIC is -9.19, and its WACC is 2.57.
In conclusion, TAL Education Group (TAL, Financial) stock appears to be significantly overvalued. The company's financial condition is fair, and its profitability is also fair. However, its growth ranks worse than 0% of 184 companies in the Education industry. To learn more about TAL Education Group stock, check out its 30-Year Financials here.
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