Stock (Symbol) |
Netease (NTES) |
Stock Price |
$181 |
Sector |
| Technology |
Data is as of |
| June 29, 2016 |
Expected to Report |
| Aug 10 |
Company Description |
 NetEase, Inc. (NetEase) is a technology company. The Company operates an interactive online community in China and is a provider of Chinese language content and services through its online games, Internet media, e-mail, e-commerce and other businesses. The Company operates through three segments: Online Game Services; Advertising Services, and E-mail, E-commerce and Others. Its online games business primarily focuses on offering personal computer (PC)-client massively multi-player online role-playing games (PC-client MMORPGs), as well as mobile games to the Chinese market. Its online advertising offerings include banner advertising, direct e-mail, sponsored special events, games, contests and other activities. It offers free and fee-based premium e-mail services to its individual users and corporate users. Source: Thomson Financial |
Sharek’s Take |
 Netease is a leading provider of online games and advertisements to Internet users in China. The company also runs one of China’s most popular web portals in 163.com, the top news app on iOS platforms, as well as the leading email service in China. I used to own NTES for clients more than a decade ago, and we would have had a ten-bagger had I held it as the stock is up from $20 to $180 during the last decade. But even up here the stock isn’t expensive. In fact, it sells for a discount. NTES has grown profits 24% year the last ten years, has an estimated long-term growth rate of 22% a year, and yet sells for just 16 1/2 times earnings. NTES is also hot fundamentally. During the last 4 qtrs profit growth has accelerated from 17% to 62%, 68% and 93% as the company has whipped profit estimates the last 3 qtrs. NTES certainly fits the mold of a stock that is capable of going on a run higher — especially with 93% profit growth and a 16 P/E. The stock is breaking out of a cup-and-handle chart pattern (one of the strongest) today and I will add it to both the Growth Portfolio and Aggressive Growth Portfolio. |
One Year Chart |
 Sparking results last qtr. Profits jumped 93% on a 116% gain in sales. Analysts had expected 55% profit growth, and NTES blew right past that number. The company was expected to make $2.25 and beat that by 55 cents. Investors get all this for just 16x earnings. And the stock is breaking out today on solid volume, currently trading at $181 up $8 on the day. |
Fair Value |
 I’m surprised at two things when I look at this table. How I didn’t own the stock during the past ten-or-so years and how the P/E has always been so low. I feel with the company blowing past estimates with rapid profit growth the stock could get to 22x earnings, which is $242. But Chinese stocks are volatile and often let investors down, so use caution when investing. |
Bottom Line |
 Netease has been a solid performer the past decade, rising 23% a year on 24% profit growth. But this has been a bumpy ride, so if you invest fasten your seatbelt. I’m extremely impressed with the company’s current fundamentals and think the stock is undervalued at 16 1/2 times earnings. The stock market has been flat for two years now, and I feel it will eventually break out and go higher. If so, there’s a chance NTES could be one of the stocks that leads the way. NTES will replace LinkedIn (LNKD) in the Growth Portfolio and Aggressive Growth Portfolio and will rank 6th of in each portfolios’ Power Rankings, |
Power Rankings |
Growth Stock Portfolio
6 of 39Aggressive Growth Portfolio 6 of 16Conservative Stock Portfolio N/A |
