Should You Ramp Up Holdings In China Education Group Holdings Limited (HKG:839)?

Stock market crashes are an opportune time to buy. High quality companies, such as China Education Group Holdings Limited, are impacted by general market panic and sell-off, but the fundamentals of these companies stay the same. In other words, now is the time to buy strong, well-proven stocks at an attractive discount.

See our latest analysis for China Education Group Holdings

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China Education Group Holdings Limited, an investment holding company, operates private higher and vocational education institutions in the People’s Republic of China. Established in 1999, and run by CEO Kai Yu, the company size now stands at 6.31k people and with the company’s market cap sitting at HK$22b, it falls under the mid-cap category. Volatility in the market is hardly detrimental to the financial health and business operations of a large, well-established company. Although some monetary and fiscal policy changes may impact some corporate financing decisions and strategy, what we’ve learnt over time is that these companies tend to adapt. And having a strong balance sheet and a history of proven success aids in this adaptability.

SEHK:839 Historical Debt January 22nd 19
SEHK:839 Historical Debt January 22nd 19

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. Furthermore, its operating cash flows amply covers its total debt by over 2x, much higher than the safe minimum of 0.2x. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning 839’s financial strength will continue to let it thrive in a fickle market.

SEHK:839 Income Statement Export January 22nd 19
SEHK:839 Income Statement Export January 22nd 19

839’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 14%, beating the market growth rate of 10.0%. Characteristics I value in a long term investment are proven in China Education Group Holdings, and I can continue to sleep easy at night with the stock as part of my portfolio.

Next Steps:

Whether you’re convinced or not, the key takeaway here is that every stock gets hit in a bear market, but not every stock deserves the blow. When prices are dropping like flies, now is the time to do your research and buy at a discount. China Education Group Holdings tick the boxes in terms of its scale, financial health and proven track record, but there are a few other things I have yet to consider. Below I’ve compiled a list of factors for you to continue your reading before you buy:
  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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at