New Oriental Earnings: Negative Share Price Reaction to Growth Guidance, but Wait for Cheaper Entry

We raise our fair value estimate for no-moat New Oriental to USD 62/HKD 49 per share after lifting our revenue growth assumptions. We think the market has been too optimistic about New Oriental’s growth and margin trajectory; the shares fell in reaction to slower growth and flat margin but still look expensive. Revenue in the company’s fiscal 2024 third quarter (ended February) beat the upper end of guidance by 10%, but management expects 28%-31% revenue growth in the fourth quarter, a meaningful deceleration from 36%-60% in the previous three quarters. In addition, non-GAAP operating margin was flat in the third quarter despite 60% revenue growth year on year, raising concerns about the margin trend.