Stock (Symbol) |
Netease (NTES) |
Stock Price |
$219 |
Sector |
| Technology |
Data is as of |
| September 8, 2016 |
Expected to Report |
| Nov 9 – 14 |
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 |
 Shares of Netease are bursting higher after another amazing earnings report. Last qt the leading provider of online games and advertisements to Internet users in China posted profit growth of 91%, blowing past estimates of 59% growth. Revenue surged 73%. Gaming on mobile devices is where the money’s at, and in my opinion the success of Pokemon has brought attention to other games as well. And Netease isn’t just a one-trick pony. 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. NTES has grown profits every year during the past decade at a rate of 25% a year. Over the last 2 qtrs it’s grown profits better than 90% and has crushed analyst estimates both times — yet still has a P/E below 20. To me this is the one stock in the market that’s most mispriced as a reasonable P/E of 35 would put the stock past $400. NTES is jumping again today, up $10 to $248. There’s excellent growth opportunity here for growth investors. |
One Year Chart |
 These charts and tables were compiled on September 8th when NTES was $219 a share. Last qtr the company made a record profit of $3.09 vs. $1.62 a year ago, and beat the street by an astounding 52 cents. Notice in the one-year chart the company made $2.12 in 2009 for the entire year. After the report, 2016 profit estimates increased from $11 to $12 (I’m rounding), 2017’s from $12.50 to $14 and 2018’s from $14 to $16. It’s head scratching how this stock has a P/E in the teens. The only negative is profit growth the next 4 qtrs is expected to be: 34%, 27%, 0% and 0% suggesting growth will slow. I doubt it. I think analysts are slow to up their estimates. |
Fair Value |
 NTES has had a low P/E for a decade now, and maybe is now getting the credit it has deserved for so long. For now my Fair Value is a P/E of 25, but I want to push it up to 35. Just waiting on the stock to go up some so I won’t seem so pie-in-the-sky. Note 2017’s Fair Value is $351 even at just 25x earnings. Also, remember these estimates just jumped, and could increase next qtr. |
Bottom Line |
 Netease has been a top stock in 2016, and over the past decade as well. The current chart pattern shows the stock has gone parabolic, but I feel that’s just the catching up NTES needed to do as the P/E was so low. The fundamentals of this stock are excellent, but I am going to resist having the stock has my top holding because Chinese Internet stocks are volatile and are prone to deep corrections. NTES ranks 2nd in both the Growth Portfolio and Aggressive Growth Portfolio Power Rankings, |
Power Rankings |
Growth Stock Portfolio
2 of 37Aggressive Growth Portfolio 2 of 16Conservative Stock Portfolio N/A |
