New Oriental Buyback Tests Undervalued Thesis

TAL Education's Strong Q1 Sets a Competitive Benchmark

The context for New Oriental's move was set just last week.

TAL Education Group reported its financial results for the first quarter on Monday, Aug 3, 2026.

Those numbers impressed the street, showing resilience and growth in a post-crackdown environment.

TAL did not stop at earnings; the company also extended its existing share buyback program.

This extension sent a clear signal that management believes its stock is trading below its intrinsic value.

The back-to-back announcements from the sector's two biggest players are not a coincidence.

They indicate a broader trend of financial normalization within the Chinese education technology space.

• TAL Education reported strong Q1 results on Aug 3.
• The company extended its share buyback program.
• Competitor performance often influences EDU's valuation multiples.

Analysts noted that TAL's ability to grow while buying back shares forced EDU's hand.

If New Oriental wanted to maintain its premium valuation, it had to respond with similar shareholder-friendly policies.

The competitive dynamic in Beijing is fierce.

Both companies are fighting for a shrinking pool of students due to demographic changes.

This makes efficiency and capital management even more critical.

TAL's results showed that demand for high-quality tutoring has not disappeared; it has merely shifted.

Students are still preparing for exams, but the delivery methods and pricing structures have evolved.

Sources confirmed that TAL's Q1 revenue growth outpaced expectations, driven by non-academic training.

This success proves there is money to be made in the new regulatory framework.

New Oriental is likely seeing similar trends in its own business, which gave it the confidence to announce its dividend.

The correlation between TAL's stock performance and EDU's is historically high.

When one moves, the other often follows.

Therefore, TAL's buyback extension effectively set a floor for the entire sector.

Investors who missed the run-up in TAL are now looking at EDU as the next logical play.

The timing of these announcements, less than two weeks apart, suggests a coordinated effort to restore confidence.

Or, at the very least, it shows that management teams are reading from the same playbook.

They are prioritizing profitability over reckless expansion, a stark change from the past decade.

This discipline is what is attracting value investors back to the names.

The market is rewarding this shift with higher valuations, though some argue the stocks still trade at a discount to global peers.

The 'Undervalued' Debate: Metrics vs. Sentiment

The central question for investors Tuesday was simple.

Does the "undervalued" tag still stick after these announcements?

Valuation models suggest the stock is cheap compared to its historical averages.

However, sentiment often lags behind fundamentals in markets like China.

Simply looking at the price-to-earnings ratio can be misleading if the earnings are unsustainable.

Analysts are digging into the quality of the earnings to ensure they aren't inflated by cost-cutting.

Sustainable growth requires revenue expansion, not just expense management.

• Analysts are reassessing valuation models post-buyback.
• Historical P/E ratios suggest a discount remains.
• Sentiment lags fundamentals in the Chinese tech sector.

The buyback announcement reduces the share count, mechanically boosting future EPS figures.

This makes the stock look cheaper on a forward basis.

But some experts warn that this is a financial engineering trick rather than true business growth.

They argue that a buyback is only good if the stock is genuinely undervalued.

If the company buys back overpriced shares, it destroys value.

The fact that insiders approved the buyback implies they believe the current price is too low.

This is a strong signal, considering management typically has the best view of the business.

The dividend adds another layer to the valuation argument.

It forces the company to generate real cash every quarter to pay shareholders.

You cannot fake a dividend payment.

This requirement imposes a discipline that benefits long-term investors.

It prevents management from wasting cash on speculative projects or empire-building.

Market data shows that companies initiating dividends often see a re-rating of their stock.

Income investors who previously avoided the sector due to volatility may now take a look.

This opens up a new buyer base for New Oriental shares.

The influx of dividend-focused investors could provide a steady bid for the stock, supporting the price.

However, risks remain.

The geopolitical tensions between the US and China cast a long shadow over all Chinese ADRs.

This risk premium is likely baked into the current low valuation.

Until those tensions ease, the stock may never trade at the same multiple as a US-based education company.

This "China discount" is a permanent fixture for many portfolio managers.

They argue that no matter how cheap the stock looks on paper, the political risk justifies a lower price.

Yet, for those willing to take that risk, the reward potential appears significant.

The combination of a growing business, a shrinking share count, and a cash dividend is a powerful formula.

It addresses the three main ways investors make money: earnings growth, multiple expansion, and income yield.

If New Oriental executes on all three, the undervalued argument becomes undeniable.

Surviving the 2021 Crackdown: A Sector Transformed

To understand the significance of Tuesday's news, one must look back five years.

The Chinese government unleashed the "Double Reduction" policy in 2021, effectively banning for-profit tutoring in core school subjects.

This decision wiped out billions of dollars in market value overnight.

New Oriental saw its stock collapse by over 90% in a matter of months.

The company was forced to lay off tens of thousands of teachers and close hundreds of learning centers.

It was an existential crisis that required a total reinvention of the business model.

• The 2021 regulatory crackdown decimated sector valuations.
• New Oriental pivoted to livestreaming and non-academic training.
• Survival required closing centers and laying off staff.

The company famously pivoted to selling agricultural products and other goods via livestreaming.

This initiative, known as East Buy, became a cultural phenomenon in China.

It kept the brand alive and generated cash flow when the education business was paralyzed.

While the livestreaming business was a lifeline, it was never going to replace the profitability of education.

The company slowly rebuilt its education business around subjects that were still allowed.

These included arts, sports, and coding, as well as study abroad consulting.

This transition was painful and slow.

Revenue took years to recover to pre-crash levels.

The announcement of a dividend signals that this rebuilding phase is largely complete.

The company is no longer in survival mode; it is in optimization mode.

This psychological shift is huge for the management team and the workforce.

It allows them to plan for the long term rather than just worrying about the next quarter.

The regulatory environment has also stabilized.

The government has moved on to other sectors, leaving the education survivors to operate under the new rules.

This predictability is exactly what investors need to value a company properly.

The chaos of 2021 made valuation impossible because no one knew the rules of the game.

Now, the rules are clear, even if they are stricter than before.

New Oriental has proven it can navigate this new landscape.

TAL has done the same.

The fact that both companies are now profitable enough to buy back shares is a testament to their resilience.

It also suggests a duopoly is forming in the sector.

Smaller players that lacked the cash reserves to survive the drought are gone forever.

This leaves the market open for the giants to consolidate their gains.

The survivors are now reaping the benefits of less competition.

Pricing power has returned, allowing for better margins.

This structural improvement in the industry economics is a key reason why the stocks are rising.

It is not just about the specific numbers from this quarter; it is about the long-term profitability of the sector.

What the Buyback Means for US Investors

For investors in the United States, Tuesday's news carries specific implications.

New Oriental trades as an ADR on the New York Stock Exchange under the ticker EDU.

This makes it accessible to retail and institutional investors in the US.

However, owning Chinese ADRs comes with unique complications.

The buyback will likely occur on the Hong Kong stock exchange, where the primary listing resides.

This can create arbitrage opportunities between the US and HK listings.

• EDU trades as an ADR on the New York Stock Exchange.
• Buybacks typically occur on the Hong Kong exchange.
• US investors benefit from reduced share counts and dividends.

When a company buys back shares in Hong Kong, it reduces the total float of the company.

This reduction applies proportionally to the ADRs traded in New York.

Therefore, US investors directly benefit from the increase in ownership percentage.

The dividend will also be paid out to ADR holders, though there may be tax withholding differences.

US investors need to weigh these tax implications against the yield.

Despite these hurdles, the move is generally seen as positive.

It shows the company is committed to its global shareholder base.

There were fears during the trade war that Chinese companies would delist from the US entirely.

A robust buyback program suggests the company intends to stay listed in New York for the foreseeable future.

If they were planning to leave, they would not be spending cash to buy back US-traded shares.

This should provide some comfort to those worried about an involuntary delisting.

The transparency of returning cash