At US$2.13, Is New Oriental Education & Technology Group Inc. (NYSE:EDU) Worth Looking At Closely?

New Oriental Education & Technology Group Inc. (NYSE:EDU), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the NYSE. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Today I will analyse the most recent data on New Oriental Education & Technology Group’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for New Oriental Education & Technology Group

Is New Oriental Education & Technology Group still cheap?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that New Oriental Education & Technology Group’s ratio of 10.81x is trading slightly below its industry peers’ ratio of 14.55x, which means if you buy New Oriental Education & Technology Group today, you’d be paying a decent price for it. And if you believe that New Oriental Education & Technology Group should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. In addition to this, it seems like New Oriental Education & Technology Group’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from New Oriental Education & Technology Group?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 80% over the next couple of years, the future seems bright for New Oriental Education & Technology Group. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? EDU’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at EDU? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on EDU, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for EDU, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 3 warning signs for New Oriental Education & Technology Group you should be aware of.

If you are no longer interested in New Oriental Education & Technology Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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