Is It Time To Revisit TAL Education Group (TAL) After Regulatory Shifts And Price Swings

• If you are wondering whether TAL Education Group at around US$10.77 is priced attractively or not, the key question is whether the current share price lines up with the underlying value of the business.
• The stock has seen mixed returns, with a 9.9% decline over the last 7 days, a 0.5% decline over 30 days, a 6.3% decline year to date, an 18.6% gain over the past year and a 104.8% gain over three years, set against an 80.8% loss over five years.
• Recent share price moves sit against a backdrop of ongoing regulatory and business changes in China's private education sector, where TAL Education Group operates. Investors have been responding to evolving policy settings for after school tutoring and the company's efforts to align its services with current rules and demand patterns.
• On Simply Wall St's valuation checks, TAL Education Group scores a full 6 out of 6, which raises the question of how different valuation methods judge the stock today, and whether there is an even more complete way to think about value that will be covered at the end of this article.

TAL Education Group delivered 18.6% returns over the last year. See how this stacks up to the rest of the Consumer Services industry.

Approach 1: TAL Education Group Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business could be worth today by projecting its future cash flows and discounting them back to a present value using a required rate of return.

For TAL Education Group, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in $. The latest twelve month free cash flow is about $444.7 million. Analysts provide explicit forecasts for several years, and Simply Wall St then extends these out to ten years, with projected free cash flow in 2035 of about $1,780.9 million, all stated before discounting to today.

Bringing those projected cash flows back to present value produces an estimated intrinsic value of about $46.21 per share. Compared with the current share price of around $10.77, the model implies a 76.7% discount. This indicates that the shares are priced well below this DCF estimate.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests TAL Education Group is undervalued by 76.7%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for TAL Education Group.

Approach 2: TAL Education Group Price vs Earnings

For profitable companies, the P/E ratio is a useful shorthand for how much investors are paying today for each dollar of earnings, which makes it a practical way to compare businesses that are already generating profits.

What counts as a normal or fair P/E depends on what the market expects for earnings growth and how risky those earnings appear to be. Higher expected growth or lower perceived risk often supports a higher P/E, while slower growth or higher risk usually points to a lower multiple.

TAL Education Group currently trades on a P/E of 12.35x, compared with the Consumer Services industry average of about 17.05x and a peer average of 18.03x. Simply Wall St’s Fair Ratio for TAL is 18.46x, which is its proprietary estimate of what the P/E might be given factors such as earnings growth, profit margins, industry, market cap and company specific risks.

This Fair Ratio can be more informative than a simple comparison with peers or the industry because it adjusts for differences in growth, risk and profitability, rather than assuming all companies deserve the same multiple. With a Fair Ratio of 18.46x versus the current 12.35x, TAL Education Group’s P/E sits below this fair value estimate.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your TAL Education Group Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives are introduced here as simple stories that you and other investors build on Simply Wall St’s Community page to connect TAL Education Group’s business context to specific revenue, earnings and margin forecasts. They translate those forecasts into a Fair Value, compare that Fair Value with the current share price to help decide whether the stock looks attractive or stretched, and then update that view automatically as new news or earnings arrive. This is why one TAL Narrative might assume a higher Fair Value of about US$17.70 based on faster growth and expanding margins, while another might sit closer to US$11.91 with more cautious assumptions, even though both use the same starting share price data.

Do you think there's more to the story for TAL Education Group? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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