Can China Education Group Holdings Limited (HKG:839) Save Your Portfolio?

When stocks are plummeting in price, it’s hard to start buying into all the uncertainty. But a disciplined long term investor knows there’s no better time to buy than right now. And I’m not talking about buying into speculative, high-risk stocks. I’m talking about the well-proven, robust track record China Education Group Holdings Limited. Why? Size. Financial health. Proven performance.

View our latest analysis for China Education Group Holdings

China Education Group Holdings Limited, an investment holding company, operates private higher and vocational education institutions in the People’s Republic of China. Formed in 1999, and headed by CEO Kai Yu, the company size now stands at 6.31k people and with the company’s market capitalisation at HK$24b, we can put it in the mid-cap group. Size matters. The bigger the company is, the more well-resourced it is. The more money it produces from its operations which means it is less reliant on external funding. When times are bad in the market, being self-sufficient is extremely important as you can continue to operate at your own pace. Therefore, large cap companies are a great bet to invest in when you’re heading to the bottom of the cycle.

SEHK:839 Historical Debt, August 5th 2019
SEHK:839 Historical Debt, August 5th 2019

China Education Group Holdings currently has CN¥237m debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. China Education Group Holdings generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 40.91x, which is well-above the minimum requirement of 3x. Moreover, its cash flows from operations copiously covers it debt by over 2x, much higher than the safe minimum of 0.2x. Not to mention, it meets the basic liquidity requirement with current assets exceeding liabilities, which further builds on its financial strength in the face of a volatile market.

SEHK:839 Income Statement, August 5th 2019
SEHK:839 Income Statement, August 5th 2019

839’s profit growth over the previous five years has been positive, with an average annual rate of 14%, outperfoming the market growth rate of 9.9%. It has also returned an ROE of 9.3% recently, above the market return of 13%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in China Education Group Holdings as an investment over the long run.

Next Steps:

Based on these three factors, 839 makes for a strong long-term investment in the face of a fickle stock market. If you’re a risk averse investor, lining your portfolio with proven companies you’re willing to buy more and more of as the price falls, is a good strategy to build your wealth over the long run. This is the beginning of your research, but before you decide to buy 839, I highly urge you to understand more about the company, in particular, in these following areas:
  1. Future Outlook: What are well-informed industry analysts predicting for 839’s future growth? Take a look at our free research report of analyst consensus for 839’s outlook.
  2. Valuation: What is 839 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 839 is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.