NetEase stock returns
China’s (FXI) gaming heavyweight NetEase (NTES) has been volatile in the last 18 months. NetEase stock gained considerable value (over 122.0%) between June 2016 and December 2017. The stock then declined close to 34.0% in 2018. Since the start of this year, NetEase stock is up by 7.8%.
NetEase is part of the high growth gaming business and has improved its sales and bottom line at a robust rate. NetEase reported revenue of $2.74 billion in the first quarter with adjusted earnings of $3.48. While sales rose 34% year-over-year, earnings rose over 300.0% for NetEase in the first quarter. Wall Street estimated the firm to post revenue of $2.67 billion and earnings of $2.27 in the first quarter.
Online gaming revenue rose 35.0% in Q1, and the e-commerce segment also rose 30.0% for NetEase. This growth was offset by the advertising business, which fell 5.0%. NetEase’s growth drivers were popular gaming titles such as Fantasy Westward Journey and Night Falls: Survival and Invincible. NetEase is estimated to grow sales by 19.6% to $11.94 billion in 2019 and by 19.0% to $14.2 billion in 2020.
NTES stock is currently trading at a forward PE multiple of 21.2x. In comparison, analysts estimate its earnings per share to rise over 50.0% in fiscal 2019 and then by 18.2% in fiscal 2020, which suggests that NetEase is undervalued at its current price.
How do analysts view NTES?
Out of the 29 analysts covering NTES, 19 recommend a “buy” and eight recommend a “hold.” The stock doesn’t have any “sell” recommendations. The analysts have an average 12-month stock price target of $290.0 for NTES, indicating the stock has an upside potential of 15.0% from its current price.