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A stocks and Shares ISA is without a doubt the best way for me to invest with a long-term mindset. It gives me the chance to save hundreds of thousands of pounds that I would normally pay in taxes when it comes time to sell my investments. Plus, with my ISA, I don't have to pay tax on my dividend income, which is another big plus.
Please note that tax treatment depends on each client's individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any type of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
A Chinese Internet Empire
The company I found is called NetEase (NASDAQ:NTES), has a market capitalization of $69 billion and is one of China's leading Internet technology companies. All its revenues come from China and it has the following areas of operation:
- Online gaming services: People know the company for its PC and mobile games, and it has created some of the most popular titles in China.
- Youdao: This is the company's educational technology subsidiary, offering online courses, language learning apps, and electronic dictionaries.
- Music Streaming: NetEase Cloud Music is a leading music streaming service in China and includes user-generated content and social media features.
- E-commerce: Often referred to as NetEase Strict Selection, it focuses on a range of e-commerce products with high quality standards.
- Other Services: It also operates other Internet services, including email and advertising, helping to bolster its technology ecosystem.
Amazing returns
In the last 20 years, the shares have risen 4,160% in price, which means a compound annual growth rate of 20.6%.
Let's compare that to the most popular American index, the S&P 500and also from the United Kingdom FTSE 100. As we can see, NetEase has been the elite investment choice for the last two decades by orders of magnitude:
Some people think that if a stock has risen quickly in the past, it will continue to rise. Others think that if it has already grown so much, it can't go any higher. Both can be right or wrong and it depends on the details of the business.
One thing that NetEase has going for it, which I particularly like, is a balance sheet with a very healthy 67% assets balanced by equity. That means management has not burdened the company with debt.
Additionally, the company has a net margin of 28.4%, which is right at the top end of its industry ranking. He struggled with this momentarily during the time of the pandemic, but now he is back on top:
Furthermore, after a couple of years of lagging earnings growth, analysts expect this to rebound significantly in 2024 and beyond. Therefore, I think the strong share price growth is likely to continue.
Risks if I invest
One of the problems with NetEase stock is that I believe it is not selling at any significant discount. That means that if I invest now and something goes wrong in the business, there will be no margin of safety in my purchase price to protect me.
For example, a major cybersecurity breach could impact customer data and, as a result, the company's reputation. Stock prices tend to fall sharply after events like this and can take time to recover, depending on the magnitude of the incident.
Overall, I appreciate the company and think it is an excellent investment option. Although the price is high, I put it on my watch list for next investment.
