New Oriental Education & Technology Group (EDU)

One of the biggest issues driving optimism is the company’s ability to beat its own guidance during the past quarter. As late as halfway through the fiscal third quarter, management was guiding for 22 to 28% revenue growth. When the number came in at 46.9% growth, investors were ecstatic. However, it raises some eyebrows as to why management continued to affirm its guidance when obviously the numbers were coming in much higher.

For the current quarter, management is now guiding for 29-34% growth and is lauding the fact that this guidance is even higher than the previous quarters guidance. This is causing many analysts to put up extremely high expectation numbers considering the fact that last quarter the company beat by such a wide margin. An analogy might be a deadly game of chicken where management continues to guide easy numbers that it can beat, analysts continue to see through the charade, until one quarter the company simply meets its own guidance or beats by a small amount. This was seen in the late 90’s and early this decade with devastating results. Stocks which are priced to perfection typically get disappointed at some point and the decline in share price is often swift and punishing.

I DONT THINK THE P-E OF EDU IS WITHIN THE REASONABLE MARGINS IN THAT SECTOR , TOUGH THE CHINESE GOVERNMENT PUTS SOME LIMITS ON THE PRICE OF THE PUPILS ARE PAYING I THINK ITS A CANDIDATE FOR SHORTING THE STOCK,