TAL Education: Education in China

06/09/2015 10:00 am EST

Focus: GLOBAL

Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Heritage Corporation

There are few places where education is valued as highly as in China; because of that attitude, demand for education is fiercely competitive in China, observes Paul Goodwin, global expert and editor of Cabot China & Emerging Markets Report.

Our favorite stock in the group today is TAL Education (XRS), a leading provider of K-12 after-school tutoring classes, one-on-one tutoring sessions, and, more recently, online courses.

Beijing and Shanghai represent more than half of all revenue. But TAL now operates in 19 cities (the plan is to enter two to four new cities per year) and gets about 45% of its business outside those two big cities.

All in all, it now operates 289 learning centers, which include 202 small class centers and 87 locations focused on one-on-one tutoring.

Size is a big reason for its success and a reason we think it will do well for many years. Being so large, and with a top-notch reputation, it attracts more students, which then attracts more and better teachers.

That online piece could eventually be big, it’s tiny right now (just $15.9 million in revenue last year), but is the leading online tutoring brand in China and should expand rapidly for many years.

Companywide, these bullish factors have led to excellent, consistent growth. Revenues have risen between 33% and 50% each of the past seven quarters.

Earnings have been lumpier, as the tutoring business is seasonal in China. However, the bottom line has risen from 27 cents per share in fiscal 2013, to 86 cents, to $1.03 last year. Analysts see earnings up another 23% this year and 34% next.

TAL Education has all the pieces we like to see in a growth stock: solid sales and earnings growth, an excellent growth story, and solid estimates going forward, both from analysts and management.

The last piece of the puzzle is the chart, which is presenting a nice entry point. XRS has formed a beautiful cup-shaped base. We think you can buy shares here and, ideally, ride the stock’s new uptrend for many months.

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