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Why NetEase, Inc. Stock Popped 15.4% in September

What happened

Shares of NetEase Inc. (NASDAQ: NTES) climbed 15.4% in September, according to data from S&P Global Market Intelligence, rebounding from their 52-week low with the help of two notable analyst upgrades.

For perspective, as of the start of last month NetEase had fallen more than 40% year to date -- a steep drop most recently accelerated by the Chinese internet company's disappointing second-quarter report in August.

Stock market charts and data overlaying a digital world map
Stock market charts and data overlaying a digital world map

IMAGE SOURCE: GETTY IMAGES.

So what

In particular, NetEase has struggled in recent quarters given a regulatory shakeup in which the Chinese government suspended new video game approvals, effectively holding back the growth of its core gaming segment.

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But analysts at both CLSA and Jefferies upgraded NetEase from hold to buy last month in light of its recent decline, with the former raising their price target from $280 to $300 and the latter reiterating their own $270-per-share model.

Noting the launch of its Ancient Nocturne title could drive returns in the near term, CLSA analyst Man Ho Lam stated: "[W]e urge investors to see past the volatile, unpredictable gaming cycle and recognize NetEase as a leading online gaming company which operates multiple long-lasting franchises."

Meanwhile, Jefferies' Karen Chan acknowledged fear surrounding regulatory issues, but now believes NetEase's valuation offers a "more favorable risk/reward" scenario to investors. Chan added that NetEase will enjoy easier comparables for mobile game performance in the coming quarters.

Now what

As it stands, NetEase should be poised to release third-quarter results early next month. But given these votes of confidence from Wall Street, investors are understandably scooping up its battered shares in the meantime. Considering the current hiatus for new game approvals in China is expected to last "only" a few more months, I won't be the least bit surprised if NetEase shares continue to soar from here.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Jefferies Financial Group Inc. and NetEase. The Motley Fool has a disclosure policy.