New Oriental Education & Technology Group Inc (NYSE:EDU) Emerges as a Strong Value Investment with Solid Fundamentals

New Oriental Education & Technology Group Inc (NYSE:EDU) has emerged as a possible choice for value investors after meeting the criteria of a "Decent Value" screen. This method spots stocks with good valuation metrics (scoring over 7 on ChartMill's valuation rating) while also showing acceptable results in profitability, financial strength, and growth. The strategy fits with classic value investing ideas, which look for companies trading below their true worth but still displaying reliable fundamentals, providing a safety net alongside steady business results.

Why EDU Is Seen as an Undervalued Stock

1. Favorable Valuation Metrics

The valuation rating for EDU is 8 out of 10, showing the stock is priced well compared to its earnings and cash flow prospects. Key points from the report include:

• Price/Earnings (P/E) Ratio of 17.04 – While this may seem high at first glance, it is lower than 75% of similar companies in the Diversified Consumer Services sector.
• Price/Forward Earnings of 13.25 – A more attractive number, indicating EDU trades at a discount relative to future earnings forecasts, doing better than 81.94% of industry rivals.
• Good Free Cash Flow Valuation – EDU’s Price/Free Cash Flow ratio is stronger than 93% of its sector, highlighting its ability to generate cash while trading at a fair price.
• Low PEG Ratio – The stock’s PEG ratio (factoring in growth) points to an undervalued status, especially with an expected EPS growth rate of 23.06% in the near future.

For value investors, these figures suggest EDU is priced below its earnings capacity, leaving room for growth if market views match its fundamentals.

2. Stable Financial Condition

EDU’s financial health rating is 5 out of 10, showing a steady but not outstanding balance sheet. Still, some key positives stand out:

• Almost No Debt – With a Debt/Equity ratio of 0.00, the company has nearly no debt, lowering financial risk and surpassing 76.39% of industry peers.
• Good Liquidity – A Current Ratio of 1.66 and Quick Ratio of 1.63 show enough short-term liquidity, ranking well against competitors.
• High Solvency – The Debt-to-Free Cash Flow ratio of just 0.02 means EDU could pay off all its debt very quickly—a rare advantage in the sector.

While the health score is average, the absence of debt and strong cash flow reduce potential downsides, a key factor for value investors looking for reliability.

3. Decent Profitability

With a profitability rating of 6 out of 10, EDU shows acceptable but not exceptional earnings strength:

• Solid Margins – An Operating Margin of 9.33% and Gross Margin of 55.03% are better than 68% of industry peers, pointing to efficient operations.
• Good Return Metrics – Return on Assets (5.26%) and Return on Equity (10.62%) are above sector averages, suggesting smart use of capital.
• Steady Earnings – The company has reported positive earnings in 4 of the last 5 years, with operating cash flow also remaining strong.

Though not a high-profit business, EDU’s earnings are enough to justify its valuation, especially given its growth potential.

4. Growth Prospects

EDU’s growth rating of 6 out of 10 reflects a mixed but upward trend:

• Revenue Growth – The past year saw an 18.73% rise in revenue, with future growth expected at 10.19% per year.
• Earnings Improvement – After a phase of falling EPS, analysts predict 23.06% annual earnings growth ahead, hinting at a possible recovery.
• Sector Position – As China’s education industry adjusts to new rules, EDU’s varied services (like test prep, online education, and livestreaming e-commerce) offer multiple paths for expansion.

For value investors, this mix of fair valuation and rising growth potential makes EDU an interesting option.

Final Thoughts: A Well-Rounded Value Pick

New Oriental Education & Technology Group Inc makes a strong case for value-focused investors. Its low valuation ratios, healthy cash flow, debt-free structure, and promising growth outlook fit well with value investing principles—finding stocks priced below their true worth with solid fundamentals. While risks exist (including regulatory changes in China’s education sector), the stock’s safety margin and earnings possibilities deserve closer attention.

For investors searching for similar opportunities, more undervalued stocks can be discovered using the Decent Value Stocks Screen.

Disclaimer: This article is not investment advice. Always do your own research or consult a financial advisor before making investment decisions.