Will NetEase Stock Move Higher in H2 2019?



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.

Article continues below advertisement

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.

PE multiple

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.


More From Market Realist