The NetEase Professor

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How long will it take for growth investors to rediscover the merits of Chinese portals such as NetEase.com (Nasdaq: NTES)? Last night the Web-savvy specialist saw its second-quarter earnings climb by 29% to $0.36 a share as revenues soared by 52%.

Let's not overlook the company's recent shortcomings. Yes, the top line outpacing the bottom line indicates that margins contracted. However, how many stateside companies do you know that are sporting net profit margins of 48% as NetEase did this past quarter? It's true that the company's wireless premium services business took a sharp sequential hit -- the company had warned as such last month -- but its growth in online games and advertising was more than enough to offset the weakness.

It's pretty sad when you consider that the one aspect of NetEase's report that had the market tuning in with interest was that it had agreed to team up with Google to provide paid-search services through NetEase's growing network of online properties. I mean, that's noteworthy when one considers that NetEase is serving up nearly 400 million Web pages a day, but NetEase should be able to stand on its own, too.

Like rivals SINA (Nasdaq: SINA) and Sohu (Nasdaq: SOHU), as well as wireless content specialist TOM Online (Nasdaq: TOMO), these are compelling companies. All four are sporting net profit margins of better than 30% while trading at forward earnings multiples in the teens. They all have cash-rich balance sheets as well.

Is NetEase a Hidden Gem? With so many attractive undiscovered companies residing stateside, one can argue that you really don't need to cross the border and take on new risks in pursuing the potential overseas. However, the growth is there to be had. The valuations are reasonable. Looking away is NetEase easy as it appears.

Is investing in NetEase.com worth the risks? Why China? Are the pure plays really as cheap as they appear? All this and more in the China Connection discussion board. Only on Fool.com.

Longtime Fool contributor Rick Munarriz clearly likes the potential of the area's key players. However, he does not own shares in any of the companies mentioned in this story.