Today we’re going to take a look at the well-established NetEase, Inc. (NASDAQ:NTES). The company’s stock saw a decent share price growth in the teens level on the NASDAQGS over the last few months. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine NetEase’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Is NetEase still cheap?
According to my valuation model, NetEase seems to be fairly priced at around 15.37% above my intrinsic value, which means if you buy NetEase today, you’d be paying a relatively reasonable price for it. And if you believe that the stock is really worth $290.34, there’s only an insignificant downside when the price falls to its real value. Furthermore, NetEase’s low beta implies that the stock is less volatile than the wider market.
Can we expect growth from NetEase?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of NetEase, it is expected to deliver a negative earnings growth of -19%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? NTES seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on NTES for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on NTES should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on NetEase. You can find everything you need to know about NetEase in the latest infographic research report. If you are no longer interested in NetEase, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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