Event driven look at Youdao
Youdao (NYSE:DAO) has drawn fresh attention after a recent pullback, with the share price down about 29% over the past month and about 5% over the past 3 months.
For investors tracking this China based education technology player, the move comes against a backdrop of reported annual revenue of CN¥5,909.019 and net income of CN¥107.346. The company also reported annual growth in both metrics.
See our latest analysis for Youdao.
At a share price of US$9.05, Youdao’s recent 30 day share price return of a 28.91% decline and year to date share price return of a 19.34% decline suggest momentum has weakened, even though the 3 year total shareholder return of 14.70% indicates a more mixed longer term picture.
If this pullback has you reassessing where growth could come from next, it might be worth scanning 59 profitable AI stocks that aren't just burning cash for other AI focused names already generating profits and revenue.
With revenue of CN¥5,909.019 and net income of CN¥107.346 set against a share price that has slipped and now trades below some analyst targets, investors may need to consider whether Youdao is undervalued or whether the market is already pricing in future growth.
Most Popular Narrative: 21.9% Undervalued
With Youdao last closing at $9.05 against a widely followed fair value estimate of $11.59, the current share price sits well below that narrative anchor and frames the recent pullback in a different light.
Strong double digit revenue growth in high potential verticals such as Digital Content Services (Youdao Lingshi), online marketing services, and AI powered smart devices indicates successful diversification and capitalizing on higher ARPU, subscription based and recurring revenue opportunities likely to improve both top line revenue and gross profit.
Read the complete narrative. Read the complete narrative.
Want to see what is driving that higher fair value? The narrative focuses on compounding earnings, steadier revenue growth, and a richer profit margin profile than today. The discount rate is set, the future P/E is marked, and the gap between price and modeled value comes down to a handful of key assumptions that are all laid out in full.
Result: Fair Value of $11.59 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, the story could change quickly if margin pressure from online marketing persists or if the smart devices and prepaid learning segments continue to lose momentum.
Find out about the key risks to this Youdao narrative.
Another View: Earnings Multiple Tells A Different Story
The fair value narrative paints Youdao as 21.9% undervalued, but the P/E tells a tougher story. At 69.6x earnings versus a fair ratio of 32.6x, the current valuation is more than double that benchmark and well above both the peer average of 20.1x and the US Consumer Services industry at 17.4x.
That kind of gap can point to a lot of optimism already in the price, or to a market that could later move closer to the fair ratio if expectations cool. Which signal do you treat as more important, the discount to fair value or the premium P/E?
See what the numbers say about this price — find out in our valuation breakdown.
Build Your Own Youdao Narrative
If you see the numbers differently or simply prefer to test your own assumptions, you can spin up a personalised Youdao view in just a few minutes. Do it your way.
A great starting point for your Youdao research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.
Looking for more investment ideas?
If Youdao has sharpened your thinking, do not stop here. The real edge comes from lining it up against a wider group of potential opportunities.
- Scan for mispriced quality by checking companies that appear on our 55 high quality undervalued stocks, where fundamentals and price sit side by side.
- Prioritise resilience by reviewing stocks with stronger cushions on their balance sheet filtered through our solid balance sheet and fundamentals stocks screener (45 results).
- Hunt for future standouts before they hit the headlines with our screener containing 23 high quality undiscovered gems that screens for quality hiding in plain sight.
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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