New Oriental Education & Technology Group (NYSE:EDU) is the largest Chinese company preparing Chinese students to take western education tests such as TOEFT, SAT, GMAT, GRE and such. Demand for such services is solid and given that students prepay for such services, cash position of the company is very healthy.
This is also a cyclical business where enrollment / collection of fees is strongest in the third quarter. For this reason it is extremely important to interpret numbers in the right context, comparing YoY result and not look into the previous quarter as much.
The numbers the company released are very good. Revenue and net income growth remains intact, suggesting New Oriental Education (NYSE:EDU) does execute very well. Looking at the growth of the company, total assets continue to grow at a healthy pace while debt load is not increasing as much. In fact the company reported slightly less debt for the current quarter than before, lowering its debt to equity ratio under 30%.
Investors have to pay attention to the rest of the sector though. Not only are they a lot smaller, but most of them got listed via "reverse mergers", a shortcut many small cap Chinese stocks have abused. When it comes to the education sector, Chinavestor advice is simple: stick with the proven industry leader. This is why we added New Oriental Education (NYSE:EDU) to the "Growth" portfolio in October to the delight of our premium members.
We would hate investors to loose their shirt on stock like China Education Alliance (NYSE:CEU) for example, a stock that lost 90% of its value in one year.