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Bear of the Day: NetEase (NTES)

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Jeremy Mullin
·3 min read
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NetEase (NTES) is a Zacks Rank #5 (Strong Sell) that is an internet tech company that is engaged in the development of applications, services, and other technologies. The company’s main focus is online gaming services, but it also provides online advertising, entertainment and micro-blogging.

About the Company

NetEase was founded in 1997 and is headquartered in Hangzhou, China. The company employs over 20,000 people and has a $62 billion market cap.

The stock holds a Zacks Style Score of “C” in both Value and Growth, but D in Momentum. It has a Froward PE of 33 and pays a 1.22% dividend.

Q3 Earnings and estimates

The company announced earnings last week, seeing a 146% surprise to the upside. Revenue came in above expectations and online games were up 20% year over year. The company hasn’t missed on EPS since 2018 and the stock is near all-time highs after the spectacular run since that year.

Normally all this good news would be bullish, but forward-looking estimates are falling, which means the stock might be getting ahead of itself.

 

 

For the current quarter, analysts have lowered estimates 10% over the last 60 days, from $0.87 to $0.78. For the current year, we have seen a 6% drop over the last 7 days. This lowering of estimates is concerning as it came after the recent earnings report, so analysts aren’t excited as investors here.

Technical Take

NetEase has had a big run in 2020, up almost 100% from the lows made back in March. The question is now if the stock is getting ahead of itself.

Investors should watch the 50-day MA at $90. If that breaks, we could see a test of the 200-day at $82.25, a level not seen since June. If the 200-day were to break $73 could be in play as it’s the 61.8% retracement drawn from March lows to recent highs.

In Summary

Both Chinese and gaming stocks have been on fire. However, when numbers are being taken down, it could be a red flag as we head into 2021. Investors should watch support levels and look to take profits if they break.



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