Why Did New Oriental Education & Technology Stock Jump Up This Week?

What happened

New Oriental Education and Technology (NYSE:EDU) Shareholders outperformed the rising market this week. Shares of the Chinese education services specialist were up 17% in Friday afternoon trading, compared to a 4% gain, according to data provided by S&P Global Market Intelligence. S&P 500, That rally added to a head-turning rebound for the stock, which is up 28% so far in 2022, after losing nearly 60% in early May.

This was driven by a well received earnings update from the management team.

So what

New Oriental on Wednesday announced fiscal fourth quarter results for the period ended May. Sales declined sharply as the company reduced its footprint in some regions while expanding more deeply into some established markets in major Chinese cities. The closure of some learning centers was part of a broader restructuring plan aimed at reducing costs and aligning the company more closely with government regulations for for-profit learning services.

Spending is up 57%, in fact, and New Oriental is sitting on more than $4 billion in cash. “We maintained a strong cash position throughout the restructuring process,” CFO Stephen Zhihui Yang said in a press release.

now what

Management said in a conference call with Wall Street analysts that they remain optimistic about new growth initiatives, including non-academic teaching and study tours. Investors were pleased to hear that the restructuring process is now essentially complete and the company expects to remain profitable in fiscal 2023, although sales will decline by about 50% due to the smaller footprint of the learning centers.

Investors can wait for further evidence of return of growth along the way before investing in this international stock. Meanwhile, the stock could see more volatility as shareholders seek clarity on New Oriental’s earnings prospects.

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Demitri Kalogeropoulos does not have a position in any of the stocks mentioned. The Motley Fool recommends the New Oriental Education and Technology Group. The Motley Fool has a disclosure policy.

The views and opinions expressed here are the views and opinions of the author and do not necessarily represent those of Nasdaq, Inc.

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