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NetEase’s Valuation Compared to BAT Stocks

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How does NetEase’s valuation look?

In this series, we’ll compare the valuations of NetEase (NTES) with critical Chinese technology stocks as of September 4. The series will look at the reasons behind NetEase’s valuations and do a comparative analysis of peer Chinese technology stocks, or BAT[1. Baidu, Alibaba, and Tencent Holdings] stocks.

The major Asian indexes, including Chinese indexes the Hang Seng, the Shanghai Composite, and the Shenzhen Composite, declined on September 4 over trade concerns. The Dow Jones, the Nasdaq Composite, and the S&P 500 also fell.

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NetEase compared to BAT stocks

NetEase (NTES) has a forecast PE multiple of 24.3x, 19.8x, and 16.7x for fiscal 2018, 2019, and 2020, respectively. The stock has “strong buy,” “buy,” and “hold” recommendations from five, 13, and 12 analysts, respectively. It has fallen 42.8% YTD (year-to-date) and last traded at a 48% discount to its 52-week high. The growth potential of the online gaming and smartphone market continues to drive the stock’s valuations.

Tencent Holdings (TCEHY) is a crucial player in China’s online gaming market. NetEase also faces competition from Baidu and Alibaba Group Holding in the online content and advertising market. Alibaba and JD.com are vital players in the e-commerce industry, offering stiff competition to NetEase.

Tencent Holdings’ PE multiple forecasts are 37.3x, 27.2x, and 19.1x for fiscal 2018, 2019, and 2020, respectively. The stock has a “buy” recommendation from one analyst. It has fallen 18.9% YTD and last traded at a 31% discount to its 52-week high.

Baidu’s (BIDU) PE multiple projections are 21.6x, 18.8x, and 15.5x for fiscal 2018, 2019, and 2020, respectively. The stock has “strong buy,” “buy,” and “hold” recommendations from eight, 14, and nine analysts, respectively. It has fallen 5.1% YTD and last traded at a 22% discount to its 52-week high.

Alibaba Group Holding (BABA) has projected PE ratios of 30x, 22.2x, and 17.1x for fiscal 2019, 2020, and 2021, respectively. The stock has “strong buy,” “buy,” and “hold” recommendations from 15, 26, and two analysts, respectively. It has fallen 1.2% YTD and last traded at a 19% discount to its 52-week high.

JD.com’s (JD) estimated PE multiples are 69.3x, 33.4x, and 21.4x for fiscal 2018, 2019, and 2020, respectively. The stock has “strong buy,” “buy,” and “hold” recommendations from six, 16, and 12 analysts, respectively. It has fallen 29% YTD and last traded at a 42% discount to its 52-week high.

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