September 19, 2020

China Online Education Group Exceeded Expectations And The Consensus Has Updated Its Estimates

As you might know, China Online Education Group (NYSE:COE) just kicked off its latest quarterly results with some very strong numbers. It was overall a positive result, with revenues beating expectations by 6.6% to hit CN¥493m. China Online Education Group also reported a statutory profit of CN¥1.37, which was an impressive 73% above what the analysts had forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

View our latest analysis for China Online Education Group

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Taking into account the latest results, the consensus forecast from China Online Education Group’s twin analysts is for revenues of CN¥2.00b in 2020, which would reflect a decent 12% improvement in sales compared to the last 12 months. Per-share earnings are expected to swell 14% to CN¥4.31. Yet prior to the latest earnings, the analysts had been anticipated revenues of CN¥1.91b and earnings per share (EPS) of CN¥3.62 in 2020. So it seems there’s been a definite increase in optimism about China Online Education Group’s future following the latest results, with a nice increase in the earnings per share forecasts in particular.

Despite these upgrades,the analysts have not made any major changes to their price target of CN¥253, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that China Online Education Group’s revenue growth is expected to slow, with forecast 12% increase next year well below the historical 41%p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 20% per year. So it’s pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than China Online Education Group.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around China Online Education Group’s earnings potential next year. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At least one analyst has provided forecasts out to 2021, which can be seen for free on our platform here.

Plus, you should also learn about the 2 warning signs we’ve spotted with China Online Education Group .

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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