Youdao (NYSE:DAO): Evaluating Valuation After S&P Global BMI Index Addition

Youdao (NYSE:DAO) has just been added to the S&P Global BMI Index, which often attracts attention from investors and index-tracking funds. This inclusion can result in increased interest and trading volume in the stock.

See our latest analysis for Youdao.

Youdao’s momentum seems to be picking up, with the share price sitting at $9.77 and a 1-year total shareholder return of just over 9%. This suggests renewed investor interest in the wake of its index inclusion and solid business growth.

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With Youdao trading below analysts’ average price target and showing robust earnings growth, the question is whether the market is underestimating its potential or if recent gains have already captured all the upside for new investors.

Most Popular Narrative: 25.1% Undervalued

According to the most widely followed narrative, Youdao's fair value is notably higher than its last close, signaling strong upside potential as seen by many analysts. A closer look at the drivers behind this perspective reveals bold assumptions about technology and operational scale in digital education.

Rapid advancement and integration of proprietary large language models like Confucius are enabling Youdao to deploy personalized and adaptive learning tools (for example, AI Essay Grading, Mr. P AI Tutor, and AI-driven course recommendations). These advancements are driving record-high user retention and positioning the company to capture structural growth in digital, lifelong, and AI-powered education, supporting future revenue growth and margin expansion.

Read the complete narrative.

Curious how this narrative expects Youdao to outperform? The heart of its optimism lies in future growth rates and ambitious profit margin gains that could transform consensus forecasts. Want to see the projections, bold targets, and the logic behind the bulls? Get the inside story behind these numbers.

Result: Fair Value of $13.04 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, weaker margins in online marketing and slowing deferred revenue growth could quickly challenge the optimistic forecasts regarding Youdao’s future value.

Find out about the key risks to this Youdao narrative.

Another View: Market Multiples Paint a Cautious Picture

Looking at Youdao through the lens of its price-to-earnings ratio reveals a less optimistic scenario. The company trades at 36.4 times earnings, which is significantly higher than both the US Consumer Services industry average of 18.5x and its peer group average of 28.9x. Even when compared to its fair ratio of 26.8x, the current level suggests investors are paying a hefty premium. This amplifies valuation risks if expectations are not met. How much upside is left before the numbers need to catch up?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Youdao Narrative

If you want more than just the consensus view or want to dig deeper into the numbers, you can build your own narrative in just a few minutes, your way. Do it your way

A great starting point for your Youdao research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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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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