Why New Oriental's Resilience Justifies a $500M Bet Despite a 13% Stock Slide

In the shadow of a 13% stock decline over the past year, New Oriental Education & Technology Group (NYSE: EDU) has quietly cemented its position as a contrarian opportunity. While the S&P 500 surged 16% in the same period, institutional investors have doubled down on the company, with First Beijing Investment Ltd and Serenity Capital Management collectively committing over $530 million to its shares according to market data. This surge in strategic conviction, despite short-term volatility, underscores a compelling narrative: New Oriental's operational resilience, cash generation, and long-term positioning in China's evolving education sector are being systematically undervalued by the market.

Operational Resilience: Diversification and AI-Driven Growth

New Oriental's third fiscal quarter of 2025 revealed a stark dichotomy. While total net revenues dipped 2.0% year over year to $1.18 billion according to investor reports, this figure masked a 21.2% year-over-year increase in core educational services when excluding the East Buy livestreaming business as reported. The company's strategic pivot to adult education, overseas test preparation, and non-academic tutoring has proven lucrative. For instance, overseas test preparation grew 7.1% YoY, while domestic adult-focused test prep surged 17.0%. Non-academic tutoring-a sector less regulated than traditional K-12 tutoring-saw a staggering 34.5% revenue increase according to Q1 results, reflecting New Oriental's agility in navigating post-crackdown reforms.

Artificial intelligence has further amplified these gains. The company's integration of AI-powered essay grading and speaking assessments has not only improved student outcomes but also reduced operational costs. By Q1 2026, non-GAAP operating margins reached 22.0%, up from 13.3% in Q3 2025, demonstrating the scalability of its tech-driven model. Analysts note that New Oriental's AI investments, including its Intelligent Learning Device and Smart Study Solution, are creating a moat against competitors as revealed in Q1 earnings.

Cash Generation and Shareholder Returns: A Contrarian Edge

Despite the stock's underperformance, New Oriental's financials tell a different story. The company's Q3 2025 operating income rose 9.8% to $124.5 million according to Q3 results, while Q1 2026 results showed a 6.0% YoY increase in operating income to $310.8 million as reported. These figures, coupled with a $695.5 million share repurchase program, highlight a disciplined approach to capital allocation. The company's three-year shareholder return plan-committing at least 50% of net income to dividends and buybacks according to investor statements-further signals confidence in its cash-generative business model.

Institutional investors appear to agree. First Beijing Investment Ltd increased its stake to 9.35 million shares, valued at $496 million according to market data, while Serenity Capital Management added 411,380 shares, making New Oriental its fifth-largest holding as reported. These bets, made amid a 13% stock slide, suggest that institutional money views the decline as a buying opportunity rather than a warning sign.

Regulatory Easing and Long-Term Positioning

China's education sector has seen a tentative thaw in regulatory pressure. While New Oriental was removed from the Hang Seng China Enterprises Index in December 2025, this short-term blow is overshadowed by broader industry trends. Reports indicate a "slight easing" of restrictions on private tutoring according to Reuters, allowing companies like New Oriental to expand non-academic offerings in 60 cities, serving 530,000 students as stated in Q1 earnings.

The company's focus on overseas markets also mitigates domestic risks. With overseas study consulting up 21.4% YoY, New Oriental is capitalizing on a globalized education demand that transcends Chinese regulatory cycles. This diversification, combined with AI-driven efficiency, positions the company to outperform peers in both growth and profitability.

Conclusion: A Case for Strategic Conviction

New Oriental's 13% stock decline is a symptom of short-term market pessimism, not a reflection of its fundamentals. The company's operational strength-evidenced by 21.2% growth in core educational services, 22.0% non-GAAP margins, and a $700 million share repurchase program-is being overlooked by a market fixated on near-term volatility. Institutional stakes worth over $530 million according to market data and a strategic pivot to AI and adult education underscore its long-term viability. For investors willing to look beyond the noise, New Oriental represents a rare blend of undervaluation, resilience, and transformative potential.