NETEASE INC-ADR (NASDAQ:NTES) - A Strong Candidate for GARP Investors

NETEASE INC-ADR (NASDAQ:NTES) stands out as a compelling pick for investors seeking growth at a reasonable price (GARP). The company meets key criteria from Peter Lynch’s investment strategy, balancing solid earnings growth, strong profitability, and a conservative financial structure—all while trading at a reasonable valuation.

Why NTES Fits the GARP Approach

• Sustainable Growth: NTES has delivered a 5-year average EPS growth of 17.5%, aligning with Lynch’s preference for steady but not excessive growth (15-30% range).
• Attractive Valuation: With a PEG ratio of 0.98 (below Lynch’s threshold of 1), the stock is priced reasonably relative to its growth.
• Strong Profitability: The company’s Return on Equity (ROE) of 22.5% exceeds the 15% minimum Lynch favored, indicating efficient use of shareholder capital.
• Healthy Balance Sheet: A Debt/Equity ratio of 0.07 and a Current Ratio of 3.21 reflect minimal reliance on debt and ample liquidity to cover short-term obligations.

Fundamental Strengths

NETEASE’s financial health is robust, with high marks for profitability and solvency. Key highlights include:

• Profit Margins: Operating margins of 30.2% rank in the top tier of the entertainment industry.
• Cash Flow: Consistent positive cash flow and a low debt-to-FCF ratio (0.25) underscore financial stability.
• Dividend Policy: A 2.14% dividend yield, paired with a sustainable payout ratio, adds income appeal.

For a deeper dive, review the full fundamental analysis of NTES.

Our Peter Lynch Strategy screener lists more stocks that fit this strategy and is updated daily.

Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but you should always conduct your own analysis before making investment decisions.