Stock (Symbol)

Tencent Holdings (TCEHY)

Stock Price

$27

Sector

Technology

Data is as of

September 8, 2016

Expected to Report

Nov 8 – 14

Company Description

Tencent Holdings Limited is an investment holding company. The Company and its subsidiaries are principally engaged in the provision of Internet and mobile value-added services (VAS), online advertising services and eCommerce transactions services to users in the People’s Republic of China. The Company operates in four segments: VAS, Online advertising, eCommerce transactions, and Others. It also engages in the provision of trademark licensing, software development services and sales of software. Its subsidiaries includes Tencent Computer, Tencent Technology, Shiji Kaixuan, Tencent Cyber (Tianjin) Company Limited (Cyber Tianjin), Tencent Asset Management Limited, among others. Source: Thomson Financial

Sharek’s Take

Founded in 1998, Tencent (TCEHY) has grown into China’s largest and most used internet service portal, bringing together China’s largest Internet community. Tencent’s brands include QQ (QQ Instant Messenger), WeChat, QQ.com, QQ Games, Qzone, and Tenpay. I’m familiar with WeChat as it’s a version of Whatsapp that’s popular within the Asian community in NYC to text and make free calls. Tencent stock reminds me a lot of Netease’s. Tencent & Netease control around 3/4 of China’s mobile game market. When I looked at TCEHY last qtr it seemed high on the chart. But now with tech stocks in a correction, Tencent has fallen from a recent high of $27 to $25 — and it’s time to buy. This stock has been a steady riser this year, and the ten-year chart really looks good. During the last 8 qtrs profits have been $0.09, 0.09, 0.11, 0.12, 0.12, 0.15 and $0.17. I like the steady rise. Another great point is the company has grown profits every year since it went public in 2008. This stock has an excellent Estimated Long Term Growth Rate of 30% per year and now sells for 37x earnings. Next Wednesday the company is set to report earnings, which I expect to meet estimates of 50% growth. My 2017 Fair Value is $34 and gives ample upside potential from today’s price. TCEHY will be added to the Growth Portfolio and Aggressive Growth Portfolio today.

One Year Chart

Nice steady rise in the stock with just a small hiccup during the stock market correction (crash) of Jan/Feb 2016. Last qtr the company delivered 42% profit on 52% sales growth — both excellent numbers. Qtrly profit Estimates are for 50%, 73%, 40% and 29% profit growth the next 4 qtrs. Profits are expected to climb 48% this year. With the stock at $25 it sells for 37x earnings and just 28x next year’s estimates.

Fair Value

The Profit History table just looks perfect, with both profits and the median stock price up every year without fail. My 2017 Fair Value is $34 which would be 36% higher than today’s quote of $25.

Bottom Line

Tencent isn’t a household name in the United States, but its very well known — and well used — in China. The stock has grown steadily since going public and with Internet stocks having the best fundamentals of any industry I cover, I feel we are lucky to be able to buy in at a reasonable price. Tech stocks have come down this week, as money has gone into copper, banks and infrastructure plays. But over the long-run profit growth leads to stock growth and those old industries are has beens. I will buy TCEHY today and it will rank 4th in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.