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China Online Education: A Small-Cap International Play For Growth Investors

Mar. 09, 2021 11:31 PM ET51Talk Online Education Group (COE)2 Comments


  • China Online Education reported its first-ever profits in 2020.
  • As a leading player in the online English training industry in China, the company is well-positioned to grow in the future.
  • The macroeconomic outlook is favorable and the stock remains significantly undervalued in the market.
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China Online Education stock analysisSource: Pixabay

Just over a week ago, I published an article on Youdao (DAO) in which I discussed how the company could benefit from favorable macroeconomic conditions for the online education industry in China. Today, I shared an article with the members of my premium investing community, Leads From Gurus, discussing why Ray Dalio remains bullish on the Chinese economy, and I believe investors need to cautiously invest in undercovered Chinese stocks despite the regulatory risks because of the very attractive fundamentals that we are seeing from this East Asian nation.

With this understanding, I scanned the online education industry in China more deeply and my findings revealed China Online Education Group (NYSE:COE) could turn out to be an attractive investment in the long run.

The business

China Online Education Group owns and operates 51Talk.com, which is one of the largest online English learning platforms in China with more than 354,000 active students and 30,000 registered teachers at the end of 2020. In addition to 51Talk, which is the core product offered by China Online Education Group, the company also offers small classes and adult learning solutions through Hawo and Worry-Free English platforms. 51Talk, however, is easily the top contributor to company revenue.

Exhibit 1: Q4 revenue breakdown by product

Source: Company filings

The company sources most of its K-12 teachers from The Philippines, so the quality of labor available in this island nation plays an important role in the success of the company.

The macroeconomic outlook is positive

When it comes to analyzing Chinese companies, it is very important to pay close attention to the regulatory outlook for the business sector in which a company operates. This is because government policies can and often will have a material impact on the earnings power of a company and business sector, and companies that

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This article was written by

Dilantha De Silva profile picture

Dilantha De Silva is a former buy-side analyst.

He runs the investing group Beat Billions. It provides investment research with a focus on small-cap stocks that are well positioned to deliver long-term alpha returns. With a strategy centered around earnings events such as earnings surprises and earnings revisions, it tries to identify earnings catalysts that could move stocks. The group provides access to in-depth research reports, model portfolios, real-time guru picks, and a vibrant investor community. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

Would you consider accumulating given the current conditions?
Very interesting but I wish they had options. Would love to write an OTM put on this.
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