Amidst a daily loss of -4.74% and a three-month gain of 26.07%, New Oriental Education & Technology Group Inc (EDU, Financial) presents an interesting case for investors analyzing its current Earnings Per Share (EPS) of 1.7. The pressing question remains: is the stock significantly overvalued? This article delves into the valuation analysis of New Oriental Education & Technology Group, guiding readers through a detailed assessment of its intrinsic value.
Company Overview
New Oriental Education & Technology Group Inc (EDU, Financial) is a foremost private education provider in China, having undergone significant business shifts following the 2021 regulatory crackdown. With a current stock price of $69.68 and a GF Value of $50.96, the company's valuation status is a pivotal topic for potential investors. The company's transition from K-9 academic tutoring to new initiatives like nonacademic tutoring and intelligent learning systems has marked a new chapter in its operational strategy. Additionally, New Oriental Education & Technology Group retains a significant stake in East Buy (HKG: 01797), a leader in livestreaming e-commerce.
Understanding GF Value
The GF Value is an exclusive metric, representing the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When a stock's price significantly exceeds the GF Value Line, it suggests overvaluation, potentially leading to poorer future returns. Conversely, a price below the GF Value Line may indicate undervaluation, with prospects for higher future returns. New Oriental Education & Technology Group (EDU, Financial), with its market cap of $11.50 billion, is currently posited as significantly overvalued according to the GF Value Line.
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Financial Strength Insights
Investors must consider a company's financial strength to mitigate the risk of permanent capital loss. New Oriental Education & Technology Group's cash-to-debt ratio of 8.77, which ranks better than 74.32% of peers in the Education industry, along with an overall financial strength rating of 7 out of 10, suggests a fair financial position.
Profitability and Growth Prospects
Consistent profitability is a key indicator of a company's investment potential. New Oriental Education & Technology Group has maintained profitability for 9 out of the past 10 years, with an operating margin of 9.46%, placing it above more than half of its industry counterparts. However, its growth rates, including a 3-year average annual revenue decline of -7.4%, raise concerns, ranking lower than a majority of companies in the Education sector.
ROIC vs. WACC: A Profitability Measure
An effective way to gauge a company's profitability is to compare its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Ideally, the ROIC should exceed the WACC to indicate efficient cash flow generation. New Oriental Education & Technology Group's ROIC is 7.87, surpassing its WACC of 5.24, which is a positive sign of financial health.
Conclusive Valuation Analysis
In summary, New Oriental Education & Technology Group (EDU, Financial) appears to be significantly overvalued at its current market price. While the company's financial strength and profitability are fair, its growth outlook is less promising compared to industry peers. For a deeper understanding of New Oriental Education & Technology Group's financials, investors are encouraged to review the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
