The TAL Education Group (TAL, Financial) recently showcased a notable daily gain of 7.03%, complemented by a three-month gain of 38.47%. Despite these impressive figures, the company has reported a Loss Per Share of $0.15. This raises a crucial question for value investors: Is TAL Education Group (TAL) significantly overvalued? The following analysis delves into the company's valuation to provide an answer.
Company Introduction
TAL Education Group is a leading smart learning solutions provider in China, which has undergone significant changes in its business model due to regulatory shifts. With a current stock price of $12.63 and a market cap of $8.10 billion, a comparison with the GF Value, an estimation of fair value, is pivotal for investors. This comparison will offer a deeper understanding of the company's financial health and intrinsic value.
Summarize GF Value
The GF Value is a proprietary measure that aims to determine the intrinsic value of a stock. It takes into account historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and future business performance estimates. The GF Value Line is a visual representation of what the fair trading value of the stock should be.
The stock of TAL Education Group is deemed significantly overvalued according to GuruFocus' valuation method. With the stock's price far exceeding the GF Value Line, the potential for future returns may be compromised. This valuation discrepancy suggests that the stock's long-term return could be lower than the company's business growth trajectory.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investors must consider a company's financial strength to mitigate the risk of capital loss. TAL Education Group boasts a strong cash-to-debt ratio of 17.17, ranking above 78.6% of its peers in the Education industry. This strength is further underscored by its financial strength rating of 8 out of 10.
Profitability and Growth
Profitability is a key indicator of a company's risk level and performance potential. TAL Education Group has maintained profitability for 6 out of the past 10 years. However, its operating margin currently lags behind the majority of the Education industry. On the growth front, TAL's revenue and EBITDA growth rates are not as competitive within the industry, which can impact the company's value.
ROIC vs WACC
Evaluating a company's profitability can also be done by comparing its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). TAL Education Group's ROIC is currently negative, which suggests that the company is not generating sufficient cash flow relative to the capital invested. This is a concern for potential investors.
Conclusion
In conclusion, TAL Education Group (TAL, Financial) appears to be significantly overvalued when considering its current market price against the GF Value. While the company maintains strong financial health, its profitability and growth metrics present a mixed picture. Prospective investors should carefully weigh these factors and review the 30-Year Financials here for a more detailed analysis.
To discover high-quality companies that may offer above-average returns, consider exploring the GuruFocus High Quality Low Capex Screener.
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.
