After reading NetEase, Inc.'s (NASDAQ:NTES) most recent earnings announcement (31 March 2019), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether NetEase's performance has been impacted by industry movements. In this article I briefly touch on my key findings.
How Well Did NTES Perform?
NTES's trailing twelve-month earnings (from 31 March 2019) of CN¥7.8b has increased by 3.3% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 12%, indicating the rate at which NTES is growing has slowed down. What could be happening here? Well, let's examine what's going on with margins and whether the entire industry is feeling the heat.
In terms of returns from investment, NetEase has fallen short of achieving a 20% return on equity (ROE), recording 15% instead. However, its return on assets (ROA) of 7.8% exceeds the US Entertainment industry of 7.1%, indicating NetEase has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for NetEase’s debt level, has declined over the past 3 years from 28% to 18%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 8.8% to 26% over the past 5 years.
What does this mean?
Though NetEase's past data is helpful, it is only one aspect of my investment thesis. While NetEase has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. I recommend you continue to research NetEase to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NTES’s future growth? Take a look at our free research report of analyst consensus for NTES’s outlook.
- Financial Health: Are NTES’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2019. This may not be consistent with full year annual report figures.
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