NetEase (NTES) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.
The upward trend in estimate revisions for this internet technology company reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
For NetEase, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
The company is expected to earn $2.06 per share for the current quarter, which represents a year-over-year change of +24.1%.
Over the last 30 days, the Zacks Consensus Estimate for NetEase has increased 10.06% because two estimates have moved higher compared to no negative revisions.
Current-Year Estimate Revisions
The company is expected to earn $8.42 per share for the full year, which represents a change of +18.59% from the prior-year number.
There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, two estimates have moved up for NetEase versus no negative revisions. This has pushed the consensus estimate 13.54% higher.
Favorable Zacks Rank
The promising estimate revisions have helped NetEase earn a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
Bottom Line
While strong estimate revisions for NetEase have attracted decent investments and pushed the stock 13.1% higher over the past four weeks, further upside may still be left in the stock. So, you may consider adding it to your portfolio right away.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
