Why New Oriental Education & Tech Grp Stock Rocketed 36% Higher in October

By Asit SharmaFool.com

New Oriental's branch location map: 62 schools and growing. Source: www.neworiental.org.

What:Shares ofNew Oriental Education & Tech Grprose 36.1% in the month of October, according to S&P Capital I.Q.data. After tacking on 16% in the first three weeks of the month, New Oriental stock soared another 20% in the days following its fiscal first-quarter 2016 earnings on Oct. 20.

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So what:New Oriental is China's largest provider of supplemental education, offering a wide array of services, including K-12 subject training, English language courses, standardized test prep, and international college admissions consulting. According to the company, it has 721 learning centers across China, including 62 schools, and employs 17,200 teachers.

Like its smaller but faster-growing Chinese competitor, TAL Education Group , which also reported stellar earnings last month, New Oriental is proving that a slowdown in the Chinese economy isn't necessarily affecting demand from Chinese students eager to gain an edge in domestic and global educational opportunities. New Oriental reported a 16.4% increase in revenue over the prior-year quarter, to $485.5 million. Net income expanded by 14.4% to $128.5 million, and earnings per diluted share similarly rose 15.5%, to $0.84.

Despite the steep improvement in revenue, New Oriental wasn't able to translate higher sales into operating leverage. The company's operating margin gained but 25 basis points, to 28.3%. By way of explanation, management cited additional teacher wage expense due to increased teaching hours, as well as higher R&D and human resources expenses related to development of the company's "online and offline integrated education ecosystem."

Now what:New Oriental's earnings undoubtedly provided relief to investors, who had worried that the Chinese economic deceleration would dampen consumer spending. Perhaps a softer economy makes parents all the more willing to bolster their children's prospects through supplemental education.

The company anticipates a vigorous second quarter as well. While management typically doesn't provide extensive guidance, New Oriental did issue a revenue growth range of 13%-17% for Q2 2016. But for the recent depreciation of the yuan against the U.S. dollar, which began during the company's fiscal first quarter, New Oriental estimates that its revenue growth for the second quarter would be as high as 17%-21%. Investors apparently are happy enough with a mid-teens double-digit growth rate for the time being.

The article Why New Oriental Education & Tech Grp Stock Rocketed 36% Higher in October originally appeared on Fool.com.

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