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ANALYSIS: Ambow Education Continues With Unpredictable Financial Results

Ambow Education has produced highly variable financial results since its U.S. IPO in mid-2018. For investors to become more interested, management will need to deliver more predictable results.

Donovan Jones
    Jul 01, 2019 5:00 AM  PT
ANALYSIS: Ambow Education Continues With Unpredictable Financial Results

Short Take

Ambow Education Holding Ltd. (NYSE American: AMBO) has recently reported financial results for its first quarter of 2019.

The firm provides education services to K-12, young adults, and in corporate training environments.

AMBO has produced highly uneven results since going public in the U.S. in the middle of 2018.

Management will need to deliver consistent and more predictable results to entice investors back into the stock.

Company

Beijing-based Ambow Education was founded in the 1990s to provide educational services, including K-12 in school education, career training, test preparation, and online services.

Management is headed by President and Chief Executive Officer Jin Huang, who was previously a founding engineer at Avant!, where she was responsible for product design and engineering management.

Ambow's primary offerings include a learning engine, which enables students to personalize their studying method; a tracking system, which monitors the student's studying progress; and an e-learning platform, which provides an online education environment.

Ambow also provides K-12 education, joint school development programs, university entrance examination prep, after-school tutoring, and pre-university skills assessment test services, and corporate training.

Market

According to a report issued by the London-based investment bank IBIS Capital, the global education market was worth $4.4 trillion in 2013 and was expected to grow some 23 percent by 2017.

Technavio's market research analyst predicts that the global higher education market will grow steadily at a CAGR of above 20 percent by 2021. The growth may be driven by a decline in public funding, globalization of education, and growing importance of education.

According to research prepared by Deloitte, the size of the Chinese education market is expected to grow from 1.6 trillion yuan in 2015 to 2.9 trillion yuan by 2020, representing total growth of 81 percent during the five-year period, for an average of 16 percent per year.

Ambow increases its customer base through a number of different marketing programs including advertising, partnering with local governments, sponsoring charity and social events and forums around educational themes and online through search and mobile social media.

Recent Performance

Ambow's topline revenue over the most recent five quarter has been uneven:

(Source: Seeking Alpha)

Gross profit by quarter has been similarly uneven:

(Source: Seeking Alpha)

Operating income has likewise fluctuated significantly:

(Source: Seeking Alpha)

Earnings per share (diluted) results have followed other major metrics and fluctuated sharply:

(Source: Seeking Alpha)

In the past 12 months, AMBO's stock price has dropped 23.4 percent vs. Bright Scholar's (BEDU) fall of 37.75 percent, as the chart below indicates:

(Source: Sentieo)

Prior to its most recent flotation, Ambow had a checkered past, as described in a previous CapitalWatch article just prior to the IPO. The firm was ultimately judged insolvent and was delisted.

However, the founder and CEO has remained in charge and again took the firm public in the U.S. in 2018.

Since its second U.S. IPO in May of 2018, Ambow's financial results have unfortunately underwhelmed. Accordingly, its stock price has performed poorly, although not as bad as some competitors such as Bright Scholar.

So, in effect, the story hasn't changed much. Ambow has succeeded in destroying shareholder value as a newly public firm in the U.S.

Until AMBO can demonstrate consistent results as opposed to its heavily fluctuating reports in recent quarters, it is difficult to see a meaningful catalyst for the stock in the near-term.

Prospective investors would do well to adopt a wait-and-see approach and watch for multiple quarters of steady and positive results before considering the stock as a long investment.

(The opinions expressed by contributing analysts do not reflect the position of CapitalWatch or its journalists. The analyst has no positions in any stocks mentioned, no plans to initiate any positions within the next 72 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)



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