Assessing NetEase Cloud Music (SEHK:9899) Valuation After Recent Share Price Weakness

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NetEase Cloud Music (SEHK:9899) has recently caught attention after a period of weaker share performance, with the stock showing declines over the past week, month and past 3 months.

At Friday’s close, shares were at HK$170.70, with the company reporting annual revenue of HK$7,706.77 and net income of HK$2,637.174, alongside positive annual growth rates for both revenue and net income.

See our latest analysis for NetEase Cloud Music.

While the recent 1 day, 7 day and 3 month share price returns of 3.01%, 5.43% and 20.46% declines suggest fading short term momentum around HK$170.70, the 1 year and 3 year total shareholder returns of 31.01% and 88.72% point to a stronger longer term story that investors are still weighing against current expectations and risks.

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With NetEase Cloud Music trading around HK$170.70, a value score of 6, and both intrinsic and analyst target discounts suggesting a wide gap, you have to ask: is this a genuine mispricing, or is the market already baking in future growth?

On a P/E of 12.5x at around HK$170.70, NetEase Cloud Music screens as good value compared to both its peers and the wider Hong Kong Entertainment industry.

The P/E ratio compares what you pay today for each unit of current earnings. This is especially relevant for a business that is already profitable rather than purely focused on user growth.

For NetEase Cloud Music, earnings grew by 110.9% over the past year and the company has become profitable over the past 5 years with earnings growth of 81.7% per year. A P/E of 12.5x suggests the market is assigning a relatively restrained price to that earnings base.

Compared to the Hong Kong Entertainment industry average P/E of 13x, NetEase Cloud Music trades slightly cheaper. It also looks inexpensive against a 46x peer average, while sitting very close to an estimated fair P/E of 12.7x that the market could move towards if sentiment and fundamentals stay aligned.

Explore the SWS fair ratio for NetEase Cloud Music

Result: Price to earnings of 12.5x (UNDERVALUED)

However, you still have to weigh recent 1 day, 7 day and 3 month share price declines alongside any shift in user engagement or content monetisation trends.

Find out about the key risks to this NetEase Cloud Music narrative.

The P/E of 12.5x makes NetEase Cloud Music look inexpensive, but our DCF model takes a different route by focusing on future cash flows. On that measure, the shares at HK$170.70 sit about 51.7% below an estimated fair value of HK$353.70, which also lines up with an 89.5% discount to the HK$323.45 analyst target. This raises the question of whether the market is being cautious or whether sentiment is simply behind the numbers.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out NetEase Cloud Music for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 238 high quality undervalued stocks. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.

If you look at this and think the story should read differently, or you simply want to test your own assumptions, you can build a fresh view in just a few minutes with Do it your way

A great starting point for your NetEase Cloud Music research is our analysis highlighting 5 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include 9899.HK.

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