— by Mitchell Clark, B. Comm.
There really are some exceptional companies in the equity marketplace right now, and any business generating top-line growth in this global recession is worth keeping an eye on.
Of course, most of the big growth is coming from Chinese companies and the good news is that many of these innovative fast growers are listed on U.S. stock exchanges. Despite their strong business models, a lot of Chinese companies choose to tap Wall Street to raise capital and list themselves as American Depositary Shares. This serves the companies well, as they get access to an enormous pool of capital and it also helps legitimize their operations in the eyes of domestic and international investors. With a broader shareholder base, raising more capital down the road is easier and, of course, the flip side is that U.S. investors get the opportunity to speculate in Chinese companies on domestic stock exchanges.
One growing, recession-resistant business that I’ve written about before in this column is New Oriental Education & Technology Group, Inc. (NYSE/EDU). This mid-cap has now honed its business plan to perfection and is reaping the benefits of a customer base that’s yearning to advance itself. The company is in the business of providing primary and middle school education, as well as English language training and a variety of other courses for adults, including test preparation for professional exams.
With so much of China’s economy being export related, you can imagine that just about every business student wants to have a working knowledge of English. When I last wrote about this company, I said that I wouldn’t bet against it and the latest numbers show why.
In its latest quarter ended May 31, New Oriental Education generated impressive revenue growth of 48%. Total sales grew to 59.4 million dollars, up solidly from sales of 40.2 million dollar generated in the same quarter last year. Total student enrollments in language training and test preparation courses grew just over eight percent year-over-year to approximately 330,200. The company added some 63 new educational facilities in its 2009 fiscal year, consisting of seven schools and 56 learning centers, bringing its total number of schools and learning centers to 270.
The company’s latest quarter saw its net income increase by 50% to $2.6 million, with income excluding share-based compensation expenses growing 58% to $7.1 million.
I know that the numbers can get a little dry, but I find this very interesting. From May 2006 to May 2008, New Oriental Education doubled the size of its sales to just over 200 million dollars. During this time, New Oriental’s profits grew about eight-fold to just under 50.0 million dollars. In this past fiscal year, which just ended in May, the company’s total sales almost hit 300 million dollars and some Wall Street estimates figure that the company will hit 500 million dollars in total sales over the next two years.
What I find interesting about this business is that it is now getting the critical mass necessary to really polish its business plan. China is a very big country in terms of population and, if New Oriental can go truly national, it should cross a billion dollars in sales in no time.
Of course, a lot of investors are already speculating on these prospects and the company’s current market capitalization is getting close to $3.0 billion. Still, I like to follow companies like New Oriental Education, because this company’s business success helps remind us of what to look for in a successful investment. As I wrote before, I wouldn’t bet against this innovative company over the coming quarters.