Yahoo Finance New Oriental Education & Technology Group Stock Shows Every Sign Of Being Significantly ...
- By GF Value
The stock of New Oriental Education & Technology Group (NYSE:EDU, 30-year Financials) is estimated to be significantly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock 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. At its current price of $9.22 per share and the market cap of $15 billion, New Oriental Education & Technology Group stock shows every sign of being significantly undervalued. GF Value for New Oriental Education & Technology Group is shown in the chart below.
Because New Oriental Education & Technology Group is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 25.3% over the past three years and is estimated to grow 22.85% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. New Oriental Education & Technology Group has a cash-to-debt ratio of 3.01, which which ranks better than 68% of the companies in Education industry. The overall financial strength of New Oriental Education & Technology Group is 5 out of 10, which indicates that the financial strength of New Oriental Education & Technology Group is fair. This is the debt and cash of New Oriental Education & Technology Group over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. New Oriental Education & Technology Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3.9 billion and earnings of $0.24 a share. Its operating margin is 5.95%, which ranks in the middle range of the companies in Education industry. Overall, the profitability of New Oriental Education & Technology Group is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of New Oriental Education & Technology Group over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of New Oriental Education & Technology Group is 25.3%, which ranks better than 84% of the companies in Education industry. The 3-year average EBITDA growth rate is 18.2%, which ranks in the middle range of the companies in Education industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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 2.97, and its cost of capital is 7.58. The historical ROIC vs WACC comparison of New Oriental Education & Technology Group is shown below:
To conclude, The stock of New Oriental Education & Technology Group (NYSE:EDU, 30-year Financials) gives every indication of being significantly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in 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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This article first appeared on GuruFocus.
