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Why Is No One Talking About NetEase Inc. Stock?

By Anders Bylund – May 29, 2018 at 4:33PM

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The Chinese gaming and online media veteran is probably easier to understand than you'd expect.

Chinese online media giant NetEase Inc. (NTES 0.56%) is hardly the talk of the town. Sporting a $30 billion market cap, NetEase works in a consumer-facing industry, and share prices have bounced between $222 and $378 over the last year. And these are the hallmarks of the market's most-discussed tickers.

But other than around the time of the company's earnings reports, NetEase rarely receives much press coverage. As of this writing, the last news report about NetEase on the Yahoo Finance feeds is five days old. Excluding The Motley Fool's efforts to keep investors informed, the newest article from other sources was published 12 days ago.

So what's the deal with the radio silence?

Man with a megaphone separated from a large crowd by a wide stretch of bare concrete.

NetEase could rightly ask: Is anybody listening? Image source: Getty Images.

Beijing is a long way away

First and foremost, NetEase is huge in China but doesn't do any business anywhere else. That makes it nearly invisible to American consumers, which leads to less interest in NetEase's headlines. In a news cycle where clicks and views often drive the editorial decisions, it just makes sense to give outsiders like NetEase less coverage.

Furthermore, American investors are often intimidated by foreign stocks that report their results under different market rules and reporting standards. Converting Chinese yuan to U.S. dollars can be a hassle, and who knows what accounting practices NetEase might use? This goes for both readers and writers, by the way -- I can't write about companies I don't understand.

Reasons to pay closer attention to NetEase

I can't really rebut the fact that NetEase works in a very different market with nearly zero ties to North America. That's going to keep a lid on NetEase coverage until the company decides to explore international expansion. The company is looking at some international expansion opportunities, but it's not an easy play. NetEase hasn't saturated the Chinese markets yet, and Beijing's regulators can make it difficult to get any overseas operations going.

On the other hand, NetEase's stock is only listed on the all-American Nasdaq exchange. There is no underlying stock on the Beijing exchange, so the financial reports must comply with Nasdaq's rules and the same SEC accounting rules as any American company. NetEase recently adopted the same Topic 606 revenue accounting rules that have resulted in large changes to many earnings reports over the last quarter and a half. Management also supplies most of its financial information in both Chinese and American currencies, allowing U.S. investors to skip the currency conversion step when analyzing NetEase's results.

So it's actually not that hard to keep an American eye on NetEase and its financial progress. In a nutshell, it's a solidly profitable video gaming and online media player in the world's largest consumer market. Earnings have seen annual growth of 24% over the last five years, while annual sales skyrocketed 46% higher. Right now, NetEase offers a modest price-to-earnings ratio of 19 times forward earnings as share prices have plunged 35% lower in the last six months.

It might not be a slam-dunk buy today, but NetEase could sure use increased media interest at the very least.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NetEase. The Motley Fool has a disclosure policy.

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