NetEase Cloud Music (SEHK:9899): Assessing Valuation After Recent Strong Share Price Gains

NetEase Cloud Music (SEHK:9899) is catching investors’ eyes this week after its price action seemed to buck broader market trends. If you have been tracking the digital music platform, you may be wondering what is behind the latest move and whether this is just noise or something more meaningful. While there is no headline-grabbing news event sparking the change, the shift in trading could signal changing expectations or investor sentiment about the company’s prospects.

Taking a step back, NetEase Cloud Music has logged some impressive gains over both the short and long term. Shares are up nearly 11% in a day, over 5% for the past week, and have climbed 4% this month. When viewed over the past three months, returns approach 19%, with the stock more than doubling year-to-date and delivering a return of nearly 200% for the year. All this is set against a backdrop of modest revenue and net income growth, which suggests the market may be recognizing a new growth narrative or reassessing the company’s risk profile.

After this powerful run, some investors may wonder whether NetEase Cloud Music is trading at a bargain with more gains ahead or if the market has already priced in the future growth story.

Price-to-Earnings of 20.9x: Is it justified?

Based on its price-to-earnings (P/E) ratio, NetEase Cloud Music appears expensive compared to both its industry peers and estimated fair value benchmarks. The stock currently trades at a P/E of 20.9x, above the Hong Kong Entertainment industry average of 18.9x and higher than its estimated fair P/E of 17.2x.

The price-to-earnings ratio compares a company's current share price to its per-share earnings. For digital media platforms like NetEase Cloud Music, this ratio is important as it reflects what investors are willing to pay for future growth and current profitability in a rapidly evolving sector.

This higher multiple may indicate that the market is pricing in optimistic earnings growth or superior business quality for the company. However, with its current P/E above industry standards and fair value benchmarks, investors should consider whether these expectations are justified by future performance.

Result: Fair Value of $264.47 (OVERVALUED)

See our latest analysis for NetEase Cloud Music.

However, slowing revenue and net income growth could undermine the bullish outlook if momentum stalls or competition intensifies in the rapidly changing digital music landscape.

Find out about the key risks to this NetEase Cloud Music narrative.

Another View: What Does Our DCF Model Say?

Looking at NetEase Cloud Music through the lens of the SWS DCF model presents a different perspective. This approach challenges the earlier valuation and suggests the shares may not be as attractively priced as first thought. Could one method be missing what the other sees?

Look into how the SWS DCF model arrives at its fair value.

Stay updated when valuation signals shift by adding NetEase Cloud Music to your watchlist or portfolio. Alternatively, explore our screener to discover other companies that fit your criteria.

Build Your Own NetEase Cloud Music Narrative

If you have a different perspective or want to dig deeper, you can pull the numbers yourself and craft a personal take in just a few minutes. Do it your way

A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding NetEase Cloud Music.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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