Today we’re going to take a look at the well-established NetEase, Inc. (NASDAQ:NTES). The company’s stock saw significant share price movement during recent months on the NASDAQGS, rising to highs of $285.44 and falling to the lows of $230.82. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether NetEase’s current trading price of $230.82 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at NetEase’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What’s the opportunity in NetEase?
According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 26.3x is currently trading slightly below its industry peers’ ratio of 26.43x, which means if you buy NetEase today, you’d be paying a reasonable price for it. And if you believe NetEase should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. In addition to this, it seems like NetEase’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What does the future of NetEase look like?
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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. NetEase’s earnings over the next few years are expected to increase by 58%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in NTES’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at NTES? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping tabs on NTES, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for NTES, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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. Thank you for reading.