Last night's blowout report from NetEase
NetEase's flagship Fantasy Westward Journey game had as many as 1,043,000 Chinese gamers playing at once. That broke the third-quarter peak usage record of 827,000 fantasy players.
The mere pocket change that most of these players are ponying up to live out their virtual lives adds up to monster profits for NetEase. Profits more than doubled to $0.96 a share for the quarter.
The stock has risen 47% higher since being recommended to Motley Fool Rule Breakers subscribers 14 months ago, but there's still some more room for upside. Despite the spectacular earnings growth, NetEase is fetching just 23 times trailing earnings. That's before you consider that the company is stocking $11.69 a share in cash on its balance sheet.
NetEase also runs a popular website with lucrative online advertising trickling in -- and remains a player in the wireless value-added services market -- but online gaming is the bread-and-butter business for NetEase.
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Fat margins. Heady growth. Reasonable profit multiple. As long as you're comfortable with the greater risks involved with buying into a formative industry in a formative nation, taking a closer look at NetEase may be in order. It's like they say: 1,084,000 simultaneous Chinese gamers can't be wrong.
Shanda has also made the cut as an active Motley Fool Rule Breakers recommendation.
Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin gaming stocks for a long time. He even recommended NetEase to subscribers of the Rule Breakers newsletter, the service where he helps seek out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy .