Watch Out: Barbarians At The Gate For NetEase (NTES)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified NetEase ( NTES) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified NetEase as such a stock due to the following factors:

  • NTES has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $31.6 million.
  • NTES has traded 646,054 shares today.
  • NTES traded in a range 201.4% of the normal price range with a price range of $2.55.
  • NTES traded above its daily resistance level (quality: 128 days, meaning that the stock is crossing a resistance level set by the last 128 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on NTES:

NetEase, Inc., through its subsidiaries, operates in online games, Internet portal, and e-mail and wireless value-added services businesses in the People's Republic of China. The stock currently has a dividend yield of 2.4%. NTES has a PE ratio of 16.3. Currently there are 6 analysts that rate NetEase a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for NetEase has been 670,700 shares per day over the past 30 days. NetEase has a market cap of $9.4 billion and is part of the technology sector and internet industry. Shares are down 7.7% year-to-date as of the close of trading on Wednesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates NetEase as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, attractive valuation levels and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Highlights from the ratings report include:
  • NTES's revenue growth trails the industry average of 21.2%. Since the same quarter one year prior, revenues slightly increased by 9.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Although NTES's debt-to-equity ratio of 0.09 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 4.14, which clearly demonstrates the ability to cover short-term cash needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, NETEASE INC's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for NETEASE INC is currently very high, coming in at 73.82%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 47.51% significantly outperformed against the industry average.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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