Pick#7, welcome insane STG

Introduction

Sunlands is an educational service provider in China specialized in post secondary education, providing Diploma, Bachelor and Master degrees . It was founded in 2003 in Beijing China and has more than 2000 employees. Sunlands started as traditional educational institute in 2003, then providing Cambridge University education in 2004, and becoming a campus in 2005. Starting from 2011, Sunlands strongly entered online education to a level now considered mainly an e-Learning platform providing led-instructor diploma and degrees in Chinese language covering huge topics including Artificial Intelligence, robotics, and electronics. Sunlands considered a leader in its online diploma/degrees in China using its own online platform. In addition, Sunlands offers online professional and educational content to help students prepare for professional certification exams and attain professional skills. To strength its position in China, it has a collaboration with recruitment providers to get market requirement and provide students with required jobs. Sunlands vision is educational degrees anywhere and anytime.

Why Sunlands?

Sunlands is trading under the code STG “Sunlands Technology Group” in New York Stock Exchange (NYSE). Honestly, the stock has both insane bad indicators as well as insane good indicators and let us start with the bad one ! Sunlands had faced tough years till it reached liabilities exceeding owned assets. It simply means it has negative equity to its shareholders !

Does above looks bad enough to avoid buying?! Then just read this paragraph. Sunlands currently become high profitable company and not only profitable, very profitable compared to its price. It is gaining $1.6 for each single share per quarter while its trading price is sometimes below $4. Read again, per quarter and not per year! It is expected to gain more than $6 for 2023 year. Below table shows the shareholder equity change per quarter and again not per year in millions CNY “China Yuan”.

Quarter	Q1 2022	Q2 2022	Q3 2022	Q4 2022	Q1 2023
Shareholder Equity	-838	-740	-543	-379	-202

From above it is expected to have assets more than liabilities in two quarters and start generating value to its patient shareholders. In simple P/E ratio indictor, Sunlands has value of 0.6 which is totally insane. Even if we considered no growth companies, usually their PE will be around 3-5, but for unique online business, showing higher return in last quarter, a P/E of 5-10 is more logical. In short, if Sunlands continues its strong profit, its price will be multiplied many times. That insane fitting our rule of buying a stock with expected double in price within 2-3 years.

Do you want to have more spicy facts to our last sentence above, the stock is trading now at $4 and it was trading just 5 months ago in Feb 2023 at $15. The stock even was trading at $100 five years ago when the company was a losing company. Below is the trends of STG in 5 years as well as its net profit in those 5 years to show that the company had grown and its situation today is different than old times, see below from Google Finance.

Other indicators

There are other bad and good indicators like the decrease in revenues. But, this is compensated by the increase in profit margin where the company can generate more profit from the same or less revenues. This could be driven by competition for attracting more students and not because of decrease in the business itself. This is said because Sunlands had received 143,179 new students enrolment in Q1 2023 which is increase of 22% YoY and usually students enrollments is in growing trends.

Mr. Tongbo Liu, Chief Executive Officer of Sunlands commented for Q1 2023: “As we reflect on the first quarter of 2023, we have witnessed a steadfast and consistent performance amid a challenging operating environment. Our first quarter net revenues remained steady, reaching RMB566.9 million, exceeding the high end of our guidance range. Our net income also experienced a slight year-over-year increase, reaching RMB180.1 million, marking the eighth consecutive quarter of sustained profitability for our company and setting a remarkable net income margin of 31.8%. We remain optimistic about our future prospects based on this encouraging start to the year,” .

To make sweety view of Sunlands, just monitor below last 8 quarters of EPS “Earning Per Share” as well as the new student enrolments per each quarter. It is easy to notice that this company founded on 2003 is solid now and fit for future.

Quarter	Q2 2021	Q3 2021	Q4 2021	Q1 2022	Q2 2022	Q3 2022	Q4 2022	Q1 2023
EPS ($)	0.26	0.09	2.81	2.14	1.26	1.69	1.73	1.9
New Enrolments	87K	93K	109K	117K	120K	135K	161K	143K

Below is EPS trend for each quarter starting from Q3 2018 from macrotrends. It is easy to notice that Sunlands was suffering in the past, but no more in the present.

Conclusion

If you plant a seed, don’t expect a fruit shortly! We understand the suffering the STG’s shareholders faced. This will drive a present hate and unbelieve. For us and from above, we can see that STG was high losing company in 2018 and was trading between $120 to $25. Loses reduced in 2019 and 2020 and it was lowest traded at $10. However, the stock didn’t react for positive income in 2021, 2022 and 2023 as fear of profit continuation and covering of negative equity was a concern. The fear from the past is making the initial resistance of raise. For us, we are considering current negative equity a calculated risk and we added STG to our portfolio in actually a double quantity of a single pick as it fills our investment rules.

One interesting notice shown below for the highest price of STG in each year. It is nice to compare that to a current price of $4. For us, that indicate how volatile is STG and how easy to get high price at any year.

Year	2018	2019	2020	2021	2022	2023
Highest Price in $	122	62.8	30.8	20	7.5	14.9

On continuation to our portfolio performance, below in blue is our portfolio index beating only DJIA, but still late than others. We hope adding insane STG will fuel the requirement in long term to beat all indexes.