New Oriental Education
New Oriental Education & Technology Group Inc. (NYSE: EDU) is a Beijing-based test preparation, after-school tutoring and language training service. The stock has collapsed since late April and now trades down more than 86% over the course of the past 12 months.
As was the case with TAL Education, New Oriental on Thursday posted a press release announcing significant government-mandated changes in its after-school tutoring business. Here’s the money quote: “[T]he excessive burden upon students from school homework and after-school tutoring, the education expenditures from their families and the burden on their parents’ energy will be effectively reduced by the end of 2021, with significant impact achieved within two years.”
Given the howling headwinds, analysts seem surprisingly blasé. Of 12 ratings on the stock, five are a Buy and five are a Hold. At a price of around $1.90, the upside potential to a median price target of $5.35 is 182%. At the high target of $23.55, the implied gain is 1,140%. Barring a change of heart by Chinese authorities, you would need to believe in the tooth fairy to think New Oriental is going to reach either target.
Analysts are looking for fiscal fourth-quarter revenue of $1.12 billion when the company reports results Tuesday morning. That would be down 5.7% sequentially but up about 40% year over year. Adjusted EPS are tabbed at $0.03, down 67% sequentially and about 90% year over year. For the full year, EPS are expected to fall from $3.03 a year ago to $0.28. Revenue, however, is forecast to rise to $4.18 billion, a year-over-year increase of about 17%.
New Oriental stock trades at 7.1 times to expected 2021 EPS, 5.9 times estimated 2022 earnings and 4.7 times estimated 2023 earnings. The stock’s 52-week range is $1.74 to $19.97, and the company does not pay a dividend.
Shanghai-based e-commerce platform provider Pinduoduo Inc. (NASDAQ: PDD) also reports results first thing Tuesday. Between August of 2020 and mid-February, the stock added more than 110% to its share price. As of Thursday’s close, the stock traded down 58% for the year to date. Since June 30, Cathie Wood’s ARK Fintech Innovation ETF has pared its holding in Pinduoduo stock from about 1.54 million to less than half a million.
Analysts, however, remain staunchly bullish, with 27 of 37 brokerages rating the stock a Buy or Strong Buy. Eight more give the shares a Hold rating. At a price of around $80.10, the stock’s upside potential, based on a median price target of $164.90, is 106%. At the high target of $229, the upside potential is about 186%.
The difference between Pinduoduo’s potential gains and New Oriental’s is that the former’s have some chance of being met. Yet, the company can do little if the government tightens its regulations.
The forecast for second-quarter revenue is $4.08 billion, up nearly 21% sequentially and up 136% year over year. Pinduoduo is expected to post a per-share loss of $0.21, an improvement of two cents sequentially and worse than last year’s loss of a penny a share. For the full year, analysts forecast a loss per share of $0.66, worse than last year’s per-share loss of $0.38. Revenue is forecast to rise by nearly 95% this year, to $17.73 billion.
The stock trades at 191.0 times estimated 2022 earnings and 50.7 times estimated 2023 earnings. The stock’s 52-week range is $69.89 to $212.60. Pinduoduo does not pay a dividend.