Education Business Tricky

There have been a lot of education businesses in the marketplace. Without question, all the publicly traded education companies, in my experience, tend to experience significant volatility in their operations.

Commensurately, the stock prices of such companies tend to be volatile as well. Timing is always crucial when investing in the business of education. In the education business, new enrollments are the bread and butter of the entire enterprise. This is why consistently successful education companies are so difficult to find. Steady enrollment growth is difficult to achieve.

Alas, there is a solution to this problem. If you just have to invest in the education business, why not go to where the major enrollment growth is? Why not invest in a Chinese company that’s growing by leaps and bounds?

Consider one of my favorite new listings on the market: New Oriental Education and Technology Group Inc. (NYSE/EDU). This company is now a “hot” stock.

This company is one of the largest providers of private educational services in China (based on the number of program offerings, total student enrollments and geographic presence.) The company sells a variety of educational programs, including English and other foreign language training, and test preparation courses for admissions and assessment tests in the U.S., China, and Commonwealth countries.

Recently, the company announced that it established a new school, the Beijing New Oriental North Star Training School. This school represents the company’s first foray into the professional certification preparation field, which includes preparation for the Chinese bar exams (PRC bar), Certified Public Accountant (CPA) and civil service exams.

According to the company, in 2006 some 280,000 individuals took the PRC bar exam, 560,000 individuals took the CPA exam, and about two million individuals took other civil service exams in China. Clearly, there is a serious market here in which to penetrate.

Investing in China stocks is a high-risk endeavor. Trying to determine an appropriate valuation for a Chinese company is problematic. So, all you can do is trade the stocks. Like I said, investing in China stocks is a risky business. But then again, where are you going to find the growth?