Comprehensive education solutions provider Elite Education Group (EEIQ) debuted on the stock exchange in March and has seen double-digit price gains in recent months thanks to strong expansion plans and efforts to develop overseas programs that have a strong appeal to the Chinese. students. However, given the company’s low profitability and the Chinese government’s tighter regulations for private after-school activities, will the stock be a valuable addition to its portfolio? Read on to find out.
One-stop education solutions company Elite Education Group International Ltd (EEIQ) provides study abroad and post-study services for Chinese students in the United States. The Middletown, Ohio-based company went public on March 25 through an initial public offering of 750,000 shares at $ 8.00 per share.
The company has a significant study abroad partnership with the University of Miami (MU) in Ohio. It offers residential accommodation, a full-service cafeteria, leisure facilities, shuttles and an on-campus office that offers students a variety of study abroad and post-study services.
EEIQ shares have gained 23.7% in the past three months, thanks to its continued efforts to expand its operations and continue its collaboration with universities and national institutions. However, it closed yesterday’s trading session at $ 5.58 and is currently trading 84.1% below its 52-week high of $ 35.20, which it hit on March 26. China recently tightened private sector regulation of out-of-school education, a decision that could negatively affect the company’s growth prospects.
Here is what could influence the performance of EEIQ in the short term:
Regulatory pressure can have a negative impact on businesses
The Chinese government’s crackdown on out-of-school education could suspend online and offline tutoring classes at private institutions. Beijing policy calls on college tutoring companies to restructure into nonprofit organizations. Even though EEIQ has expanded its offering through strategic collaborations with various Chinese universities and institutions, the country’s new regulations for the private tutoring industry, to ease the pressure on students, could hurt the company’s plans to collaborate. with national universities in China and its online education. Platform.
EEIQ’s operating loss was $ 393.07 million, compared to operating profit of $ 1.68 billion for the six-month period ended March 31, 2021. The company reported a net loss of 291.89 million dollars, compared with a net profit of 1.31 billion dollars the previous year. Its loss per share was $ 0.04, compared to EPS of $ 0.17 in the same period last year. In addition, its net cash used in operating activities jumped 12.3% year-on-year to $ 2.87 billion.
His last 12 months EBITDA margin, the ROA and the net income margin are respectively negative at 11.5%, 3.9% and 9.8%. In addition, EEIQ’s 0.5% asset turnover rate is 57.2% lower than the industry average of 1.1%.
In terms of EV / forward sales, EEIQ is currently trading at 5.97x, which is 300.5% above the industry average 1.49x. Additionally, its 7.15x futures price / sell is 479% higher than the industry average 1.23x. Additionally, the stock’s price-to-book ratio of 4.92 over the last 12 months is 63.1% higher than the industry average of 3.01.
Unfavorable POWR ratings
EEIQ has an overall D rating, which is equivalent to selling in our own POWR odds system. POWR scores are calculated by considering 118 different factors, each factor being weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight different categories. EEIQ has a D rating for quality and stability. This is justified given the negative profit margin of the stock and its higher volatility compared to its peers.
Additionally, the stock has a C rating for the stock, which is consistent with the stock’s valuation multiples above those in the industry.
Of the 32 D-listed stocks Outsourcing – Education Services industry, EEIQ is ranked # 29.
Beyond what we’ve stated above, we’ve rated EEIQ for sentiment, momentum, and growth. Get all EEIQ assessments here.
Although EEIQ has generated significant momentum in recent weeks, its weak fundamentals and low profitability do not justify its stretched valuation. In addition, the Chinese government’s efforts to regulate the private tutoring industry could hamper its growth and cause the stock to decline in the near term. So we think the stock is best avoided now.
How does Elite Education Group International (EEIQ) compare to its peers?
While the EEIQ has an overall POWR rating of D, one might consider looking at its industry peers, Lincoln Educational Services Corporation (CLICK), which has an A rating (strong buy), and Franklin Covey Company (FC), which has a B (Buy) rating.
Note that LINC is one of the few stocks selected by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $ 10 portfolio. Learn more here.
EEIQ shares were trading at $ 5.32 per share on Tuesday morning, down $ 0.26 (-4.66%). Year-to-date, the EEIQ has gained 33.00%, compared to a 20.61% increase in the benchmark S&P 500 over the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college, she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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