NETEASE INC-ADR (NASDAQ:NTES) – A Strong Contender 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, a major player in China’s gaming and entertainment sector, meets key criteria from Peter Lynch’s investment strategy, balancing solid growth with sound financial health and an attractive valuation.

Why NTES Fits the GARP Approach

• Sustainable Growth: NTES has delivered a 5-year average EPS growth of 17.5%, comfortably within Lynch’s preferred range of 15-30%. This indicates steady, manageable expansion rather than overheated growth.
• Reasonable Valuation: With a PEG ratio of 0.97 (below Lynch’s threshold of 1), the stock is priced attractively relative to its earnings growth. The P/E of 16.99 also compares favorably to industry peers.
• Strong Profitability: The company’s return on equity (ROE) of 22.5% exceeds Lynch’s 15% benchmark, reflecting efficient use of shareholder capital. Operating margins of 30.2% further highlight its earnings power.
• Healthy Balance Sheet: NTES maintains a low debt-to-equity ratio of 0.07, well below Lynch’s upper limit of 0.6. Its current ratio of 3.21 signals ample liquidity to cover short-term obligations.

Fundamental Strengths

Our full analysis rates NTES highly for profitability and financial health, with an overall score of 7/10. Key positives include industry-leading margins, consistent cash flow, and a history of share buybacks. While near-term EPS growth may slow, the company’s revenue is projected to grow at 9.5% annually, supported by its diverse segments in gaming, music, and education.

For investors building a long-term portfolio, NTES offers a mix of growth potential and stability. The Peter Lynch screen identifies similar opportunities; explore more candidates here: https://www.chartmill.com/stock/stock-screener?sid=685&f=sl_eps5y_15_30,sl_roe_15_X,sl_peg5_X_1,sl_cr_1_X,sl_deq_X_0.6,v1_50b100&v=19&s=fa&sd=DESC&cpl=2&bc=false&nw=1&o1=3&op1=200,16711680&o2=3&op2=50,255&o3=1.

Disclaimer

This is not investing advice. Always conduct your own research before making investment decisions.