New Oriental Shines Amid Growing Demand For Tutoring
New Oriental operates more than 700 facilities in China that focus mainly on foreign languages and college test preparation. Many of its students go on to study abroad. The stock has climbed 49% year to date and is 23% past a 23.54 buy point from a double-bottom base, which it cleared in September. Investors who bought at the breakout should consider taking profits, as most stocks tend to correct and form new bases after rising 20% or more. ViewEnlargedImage Profit growth has ranged from 22% to 38% over the past three quarters. Revenue growth remains strong, but it's decelerated for three straight quarters, going from an increase of 30% to gains of 29%, 27% and 16%. Still, the outlook for private tutoring services is bright. A 2012 study by the market research firm Global Industry Analysts said the global tutoring market will likely exceed $102.8 billion by 2018, with China and the rest of Asia leading the way. New Oriental has posted seven-straight years of annual profit growth, tutoring including strong gains during the dark days of 2007-08. Profit for this year is seen rising 21% to $1.26 a share, followed by a 24% increase in 2014. New Oriental has a best-possible 99 Composite Rating, tops in the 30-member Consumer Services-Education industry group along with Chinese rivals TAL Education ( XRS ) and China Distance Education ( DL ). On Wednesday, the group was ranked No. 16 out of the 197 industries tracked by IBD. New Oriental's Accumulation/Distribution Rating is A- and the up/down volume ratio is 1.6, indicating strong demand for shares. The stock has attracted top institutional investors such as the Fidelity Contrafund. Such support is a good sign given that short seller Muddy Waters Research slammed New Oriental on July 18, 2012. The stock fell 11% over seven weeks as it formed the 23.54 entry in the double-bottom. Meanwhile, TAL and China Distance have also soared this year, but both are thinly traded and don't have strong institutional sponsorship . TAL has shaped a four-weeks-tight pattern with a 20.54 buy point, but the pattern was damaged Wednesday when the stock dropped to support at its 50-day line. China Distance is well out of buying range.