Services

Earnings Previews: New Oriental Education, Pinduoduo

While three of four earnings reports we highlighted for Monday afternoon and Tuesday morning beat estimates on both the top and bottom lines, two of those three traded sharply lower in the first hour of trading on Tuesday. Both Zoom Video Communications and Best Buy were down about 15%, the former on slower-than-expected growth and the latter on a dip in margins. Only Dick’s Sporting Goods traded higher Tuesday morning.

After markets close on Tuesday and before they open on Wednesday, reports are expected from Dell, HP, Nordstrom and Deere.

No earnings reports are due after markets close Wednesday, nor any on Thanksgiving Day, when U.S. markets are closed. On Friday, we will hear from one China-based e-commerce company and could get results from another Chinese education and tutoring firm, although that has not been confirmed. Here’s a look at these two firms.

Pinduoduo

What separates Pinduoduo Inc. (NASDAQ: PDD) from its larger rivals Alibaba and JD.com is its focus on selling agricultural products directly from farmers to consumers. Some 600,000 distributors sold farm products through the website in 2019, and the company has set a goal to sell $145 billion worth of farm produce annually by 2025 (that’s gross merchandise value, not revenue).

While the company has more active users than Alibaba, that hasn’t been sufficient to stem the decline in the stock’s price. Shares have dipped by about 43% in the past 12 months, only slightly less than the 49% drop in Alibaba’s stock price.

There are 35 analysts covering the stock, and 28 of those have Buy or Strong Buy ratings. The other seven rate the stock at Hold. At a recent price of around $81.60 a share, the upside potential based on a median price target of $131.45 is 61%. At the high price target of $217.40, the upside potential is 166%.

When the company reports third-quarter results first thing Friday, analysts are expecting revenue of $4.04 billion, which would be up 13.2% sequentially and 93% higher year over year. Adjusted earnings per share (EPS) are forecast at $0.04, down 90% sequentially and down 20% year over year. For full fiscal 2021, Pinduoduo is forecast to post EPS of $0.13, up from a loss per share of $0.38 in 2020, on sales of $16.86 billion, up 85%.

Based on estimated EPS of $0.74 in fiscal 2022, Pinduoduo’s earnings multiple for next year is 108.6. For fiscal 2023, the multiple to estimated EPS of $1.98 is 40.6. The stock’s 52-week range is $74.12 to $212.60, and Pinduoduo does not pay a dividend.

New Oriental Education

Shares of Beijing-based New Oriental Education & Technology Group Inc. (NYSE: EDU) have plunged by around 87% over the past 12 months. By now, the story is widely known: China’s government forbade the country’s many after-school education and tutoring firms from teaching the same curriculum being taught in the country’s free public schools.

In a business update released earlier this month, New Oriental said it will stop offering these classes by the end of this year and that the closure could cost the company 50% to 60% of its annual revenue, the amount that these classes have generated in the past. Unlike Meten, another tutoring company that will have to stop teaching similar classes and is pivoting into cryptocurrency mining and metaverse products, New Oriental said  it will shift to “test preparation courses, language training courses for adults and educational materials.”

Of 18 analysts covering the stock, half have a Hold rating, and six rate the stock at Buy or Strong Buy. At a share price of around $2.30, the upside potential based on a median price target of $3.20 is 39%. At the high price target of $18, the upside potential is more than 680%.

Analysts expect the company to report first-quarter fiscal 2022 revenue of $1.29 billion, up 6.8% sequentially and 30% year over year. Adjusted EPS are tabbed at $0.03, up from flat in the prior quarter but down from $0.12 in the year-ago period. For the full fiscal year ending next May, analysts currently forecast a loss per share of $0.09, compared with a profit of $0.25 in the prior year, on sales of $2.81 billion, down 34%.

Based on estimated EPS of $0.25 in fiscal 2023, New Oriental’s earnings multiple for the year is 9.0. For fiscal 2024, the multiple to estimated EPS of $0.30 is 7.5. The stock’s 52-week range is $1.68 to $19.97, and the company does not pay a dividend.