Shares of TAL Education Group TAL have rallied more than 150% so far this year, outperforming the 42.1% gain of the Zacks Schools Industry. Also, the company has outperformed the industry in the 52-week time frame.
Moreover, earnings estimates have risen in the last few weeks, suggesting that sentiments on TAL Education are moving in the right direction. Over the last 60 days, the Zacks Consensus Estimate for the third quarter of fiscal 2018 and full-year fiscal 2018 earnings increased 40% and 8.8%, respectively.
Also, earnings estimate for fiscal 2019 have increased 14.3% in the same time frame. This signifies bullish analysts’ sentiment. Also, this Zacks Rank #2 (Buy) company’s robust fundamentals and expectations of outperformance in the near term raise hopes. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This leading K-12 after-school tutoring services provider in China has strengths in several key areas. Thus, adding the stock to your portfolio seems prudent.
Solid Growth Prospect
Education is a priority for any country and the market for K-12 education has been growing rapidly in China. TAL Education is a market leader and continues to exhibit consistent performance driven by high demand in all cities and supported by further capacity expansion.
The company registered robust top-line growth during the first six months of fiscal 2018. Top line grew 66.8% year over year to $456 million. Total student enrollments during the period increased 86.5% to approximately 3,290,140.
Even total physical network increased to 575 learning centers in 36 cities as of Aug 31, 2017 from 507 learning centers in 30 cities as of Feb 28, 2017.
Given the solid performance, the company expects total net revenues for the third quarter of fiscal 2018 to be between $411.7 million and $416.9 million, reflecting an increase of 58-60% year over year.
The education provider’s earnings for fiscal 2018 are expected to increase 68.2% year over year, comfortably outpacing the industry’s average projected growth of 12.3%. The company’s projected sales growth is a healthy 63.6%, higher than the industry average.
Focus on Capacity Expansion and Online Business
TAL Education has been constantly adding new learning centers in order to meet the robust demand for its services across all cities in China. This new capacity expansion will give the company more leverage going forward. It reviews learning center performance on a routine basis and has been slashing underperforming one-on-one learning centers.
Coming to the company’s online business, revenues from xueersi.com grew by 144% year over year in renminbi terms in the recently reported quarter. Online contributed 6.3% to total revenues in the second quarter of fiscal 2018 compared with 4.4% a year ago. Technological advancements will improve operational efficiency and help the online live teaching model to scale over time, thereby increasing top and bottom line.
Return on Equity
TAL Education’s trailing 12-month return on equity (ROE) supports its growth potential. ROE in the trailing 12 months is 18.2%, while the industry gained 11.7%, reflecting the company’s efficient usage of shareholders’ funds.
Other Stocks to Consider
A few other top-ranked stocks in the Consumer Discretionary sector are American Public Education, Inc. APEI, Acushnet Holdings Corp. GOLF and Grand Canyon Education, Inc. LOPE.
American Public Education and Acushnet Holdings sport a Zacks Rank #1, while Grand Canyon carries a Zacks Rank #2.
American Public Education’s earnings estimate for 2017 moved 5.9% north in the last 30 days.
Acushnet Holdings is expected to witness 74.6% growth in earnings this year.
Earnings for Grand Canyon are expected to increase 21.9% this year.
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