China Online Education Group Just Beat EPS By 175%: Here's What Analysts Think Will Happen Next

A week ago, China Online Education Group (NYSE:COE) came out with a strong set of third-quarter numbers that could potentially lead to a re-rate of the stock. It was overall a positive result, with revenues beating expectations by 3.1% to hit CN¥538m. China Online Education Group also reported a statutory profit of CN¥1.32, which was an impressive 175% above what the analysts had forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

See our latest analysis for China Online Education Group

Taking into account the latest results, the current consensus from China Online Education Group's twin analysts is for revenues of CN¥2.48b in 2021, which would reflect a substantial 138% increase on its sales over the past 12 months. China Online Education Group is also expected to turn profitable, with statutory earnings of CN¥7.34 per share. Yet prior to the latest earnings, the analysts had been anticipated revenues of CN¥2.46b and earnings per share (EPS) of CN¥7.55 in 2021. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but the analysts did make a minor downgrade to their earnings per share forecasts.

It might be a surprise to learn that the consensus price target was broadly unchanged at CN¥243, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the China Online Education Group's past performance and to peers in the same industry. It's clear from the latest estimates that China Online Education Group's rate of growth is expected to accelerate meaningfully, with the forecast 138% revenue growth noticeably faster than its historical growth of 35%p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 23% next year. Factoring in the forecast acceleration in revenue, it's pretty clear that China Online Education Group is expected to grow much faster than its industry.

The Bottom Line

The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for China Online Education Group. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry. The consensus price target held steady at CN¥243, with the latest estimates not enough to have an impact on their price targets.

With that in mind, we wouldn't be too quick to come to a conclusion on China Online Education Group. Long-term earnings power is much more important than next year's profits. At least one analyst has provided forecasts out to 2021, which can be seen for free on our platform here.

You still need to take note of risks, for example - China Online Education Group has 2 warning signs we think you should be aware of.

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