Please ensure Javascript is enabled for purposes of website accessibility

Why NetEase Stock Soared 48% So Far in 2017

By Joe Tenebruso - Jul 27, 2017 at 2:40PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Chinese tech giant is enjoying surging demand for its popular mobile games.

What happened

Shares of Chinese online services company NetEase (NTES -1.77%) have gained nearly 50% in value since the beginning of the year, according to data provided by S&P Global Market Intelligence, fueled by the torrid growth of China's video game market.

A family playing video games

Image source: Getty Images.

So what

NetEase got off to a fast start in 2017, popping 20% in February on the heels of a strong fourth-quarter earnings report that revealed a 53% year-over-year revenue leap to 12.099 billion Chinese renminbi (RMB), or roughly $1.74 billion. Adjusted net income rose an even more impressive 68%, to $4.30 per diluted American depositary share (ADS), prompting NetEase's board of directors to approve a nearly 30% increase in its quarterly dividend.

The tech company followed that up with solid first-quarter results in May, including 72% revenue growth in local currency and a 63% jump in adjusted net income -- both of which handily beat Wall Street's expectations.

Now what

The Chinese video game industry is expected to generate $27.5 billion in sales in 2017, according to market intelligence company Newzoo, and is forecast to grow to nearly $34 billion by 2020. NetEase is positioning itself to capture the lion's share of this massive market by aggressively rolling out new games -- it released 40 new mobile titles in 2016 alone. 

The stock has been a star performer, delivering gains of more than 1,000% over the past decade. Yet even after that blistering growth, NetEase's shares still trade today at a forward P/E of only 17.5  -- an attractive valuation for a business projected to grow earnings at an annualized rate of more than 30%  over the next half decade. At these levels, it appears that plenty of upside remains in NetEase's shares, and this Chinese video game titan looks poised to reward investors in the years ahead.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends NetEase. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NetEase, Inc. Stock Quote
NetEase, Inc.
NTES
$91.53 (-1.77%) $-1.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
402%
 
S&P 500 Returns
129%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.