Life is good -- but not that good -- at (NASDAQ:NTES).

The Chinese Internet gaming leader posted spectacular fourth-quarter results on the surface. Revenue climbed 29% to $117.5 million. Earnings soared by 48% to $84.4 million, or $0.65 a share. Wall Street was only expecting a profit of $0.44 a share.

If the numbers appear too good to be true ... they are. $84.4 million in profitability on $117.5 million in revenue? Chinese growth stocks deliver superior profit margins, but a 72% net margin is a head-shaker.

Dig into the report, and you'll find that the company recorded a hefty tax benefit, offsetting taxes that were overpaid through the first three quarters of 2008.

Encouragingly, though, the revenue growth is genuine. The company continues to gain ground on its time-based Fantasy Westward Journey, where Chinese citizens pay by the hour to play in the leading fantasy role-playing game. NetEase is also gaining traction with its item-based Tianxia II game. It's free to play, but gamers are encouraged to purchase items that enhance the 3-D game.

The other really exciting part of the report? If you smooth out the tax swings by looking at all of 2008, NetEase earned $1.81 a share. How can a fast-growing company like NetEase be trading for just 10 times earnings?

That attractive trailing P/E multiple gets even lower when you back out the $822.8 million -- or $6.37 a share -- in cash and investments on the company's balance sheet, and the juicy interest income that money is collecting.

Online gaming isn't NetEase's only strength. Sure, it accounted for 84% of the revenue during the quarter, but the 14% slice provided by Internet advertising is also growing nicely.

That's a point worth mentioning, because investors are seriously dissing the online multiplayer game companies in China.

Just check out some of the forward P/E multiples that the niche's publicly traded players now command:


2009 EPS





Shanda Interactive (NASDAQ:SNDA)








Perfect World (NASDAQ:PWRD)



Giant Interactive (NYSE:GA)



Many of these companies are growing a lot faster than their low multiples suggest. They are also mostly cash-rich companies, with plenty of money to deploy in developing, licensing, or acquiring new games if their stables grow stale.

Do investors fear that China's fickle youth will tire of these games? If so, they have been dead wrong for several years. Shanda and NetEase were recommended to Motley Fool Rule Breakers subscribers more than four years ago, and they're still going strong.

The industry is cheap. NetEase is way cheap. Mr. Market? He's just way wrong.

Three more ways to play in China:,, and Shanda are Motley Fool Rule Breakers recommendations. Activision Blizzard is a Motley Fool Stock Advisor pick. Try any of our newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin gaming stocks for a long time. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool has a disclosure policy.