NetEase Inc (NTES, Financial) recently experienced a daily loss of 3.61%, yet it has seen a gain of 5.73% over the past three months. With an Earnings Per Share (EPS) of 5.79, investors are keen to understand whether the stock is fairly valued. This article delves into the valuation analysis of NetEase (NTES), providing insights into its current market position and future prospects.
Company Introduction
Founded in 1997, NetEase started as an internet portal service and has grown into a leading online services provider in China. Its diverse offerings include online and mobile games, cloud music, media, advertising, email services, live streaming, online education, and e-commerce. NetEase develops and operates some of China's most popular PC client and mobile games and partners with top-tier game developers such as Blizzard Entertainment and Mojang, a Microsoft subsidiary. With a stock price of $109.38 and a GF Value of $104.19, analyzing the company's value becomes crucial for investors looking to make informed decisions.
Summarize GF Value
The GF Value is a unique measure that reflects the intrinsic value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and estimates of future business performance. When the stock price aligns closely with the GF Value Line, it suggests that the stock is fairly valued.
NetEase (NTES, Financial) appears to be fairly valued according to GuruFocus' valuation method. The GF Value estimation indicates that if the stock price is significantly above the GF Value Line, the stock might be overvalued, potentially leading to poor future returns. Conversely, if it's below, the stock might be undervalued, indicating higher future returns. Currently, at $109.38 per share, NetEase's valuation suggests that the long-term return on its stock will likely mirror the rate of its business growth.
Financial Strength
Investors should consider a company's financial strength to avoid the high risk of permanent capital loss. Key indicators such as the cash-to-debt ratio, which for NetEase stands at 9.51, provide insights into the company's financial robustness. Ranking better than 57.83% of its peers in the Interactive Media industry, NetEase's overall financial strength is rated a solid 8 out of 10.
Profitability and Growth
Investing in profitable companies, especially those with a track record of consistent profitability, presents lower risk. NetEase has maintained profitability for the past decade, with a revenue of $14.40 billion and an Earnings Per Share (EPS) of $5.79 over the last twelve months. Its operating margin of 24.83% stands out in the industry, and its profitability rank is an impressive 10 out of 10.
Growth is a critical valuation factor, with GuruFocus research indicating a strong correlation with long-term stock performance. NetEase's 3-year average revenue growth rate surpasses 66.86% of competitors in the Interactive Media industry, and its EBITDA growth rate is also noteworthy.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) helps assess profitability. NetEase's ROIC of 27.99 over the past 12 months significantly exceeds its WACC of 7.53, indicating value creation for shareholders.
Conclusion
In summary, NetEase (NTES, Financial) is currently fairly valued. The company boasts strong financial health and profitability, with growth rates outperforming a substantial portion of the industry. For a deeper understanding of NetEase's financials, investors can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
