Youdao (NYSE:DAO): Is the Recent Share Price Rally Supported by Current Valuation?

Youdao (NYSE:DAO) shares are catching some attention today as investors revisit the company’s recent performance in light of shifting trends within the online education sector. The stock has moved about 7% higher in the last day, which has sparked conversation around its momentum.

See our latest analysis for Youdao.

After a pronounced dip last month, Youdao’s share price has bounced back with a sharp 7% gain on the day and a year-to-date share price return of nearly 35%. Long-term investors have enjoyed an even better ride, with the company posting an impressive 85% total shareholder return over the past year. This suggests growing confidence in its turnaround and growth narrative.

If Youdao’s recent surge has you thinking bigger, now is the perfect time to expand your search and discover fast growing stocks with high insider ownership

With Youdao’s stock bouncing back and its earnings growth outpacing revenues, the big question is whether the recent rally represents an attractive entry point or if the market has already factored in all of the future potential.

Most Popular Narrative: 26.4% Undervalued

The current most widely followed narrative puts Youdao’s fair value at $13.04, significantly above its latest closing price of $9.60. This signals heightened optimism around the company’s profitability trajectory and potential for further gains, given a sizable valuation gap.

Rapid advancement and integration of proprietary large language models like Confucius are enabling Youdao to deploy personalized and adaptive learning tools (e.g., AI Essay Grading, Mr. P AI Tutor, and AI-driven course recommendations). These innovations 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.

Want to see the financial forecasts that justify this premium valuation? The real story lies in bold profit expectations and ambitious sector-beating growth rates. Click to discover the assumptions that set this target price apart.

Result: Fair Value of $13.04 (UNDERVALUED)

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

However, weaker demand for smart devices and ongoing margin pressures could undermine Youdao’s growth outlook. These factors pose risks to the company’s profitability narrative.

Find out about the key risks to this Youdao narrative.

Another View: Is the Market Overvaluing Youdao?

While the current fair value narrative signals upside, a look at Youdao’s price-to-earnings ratio paints a starkly different picture. At 57.4x, it rises above both the sector average of 15.7x and the peer average of 11.5x, and also stands well above the fair ratio of 38.3x. This suggests investors are paying a hefty premium based on future hopes, which could spell increased downside risk if growth does not accelerate. Are these high expectations justified, or is caution the smarter move?

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

Build Your Own Youdao Narrative

If you see things differently or want to dig into the numbers yourself, you can assemble your own Youdao story in just a few minutes. 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.

Looking for More Investment Ideas?

Don’t let great opportunities pass by; fuel your portfolio with fresh, unique stock picks powered by the most advanced screeners on Simply Wall St.

• Boost your returns and spot overlooked opportunities by checking out these 924 undervalued stocks based on cash flows that are trading below their true value right now.
• Tap into major medical breakthroughs, emerging trends, and future health leaders with these 30 healthcare AI stocks for cutting-edge growth potential.
• Seize early-stage momentum and unlock high-reward potential by exploring these 3605 penny stocks with strong financials poised for the next big breakout.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com