NTES Investment Analysis Report & Stock Research, Netease.com, Incorpoated- Shs American Deposit.Receipt Repr 25 Shs

Ockham's Rating/Recommendation Summary

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NTES Revenue

As a value investing shop, we are interested in seeing how NTES's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 16.05x and the low end of the range at 6.00x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for NTES of 9.37x is significantly below its average levels historically. In fact, with a current price of $40.20, NTES is a full 16% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for NTES.

NTES Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of NTES, Ockham views their current Cash Earnings as significantly above their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for NTES, the current level of Cash Earnings compared to its historical levels helps identify where NTES is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 28.78 and a historical low Cash Earnings per share ratio of 10.86, an investor can relate where value becomes optimal.

Therefore, at the current price of $40.20 and a Price to Cash Earnings ratio of 22.97, NTES is significantly overvalued. This diminishes the attractiveness of NTES until we see either a significant increase in cash earnings or a decline in price. A decline of the Price to Cash Earnings ratio of 15% is needed just to return to the historical cash earnings multiple.

NTES Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company. As far as our investing methodology goes, it is not necessary to pay a dividend in order to get a favorable rating, so as for right now NTES gets a neutral rating for the dividend portion of the model. As you can see, we are not receiving historical dividend information from our data provider on NTES at this time.