Stock (Symbol)

Tencent Holdings (TCEHY)

Stock Price

$30

Sector

Technology

Data is as of

April 13, 2017

Expected to Report

May 17

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) is China’s largest and most used internet service portal. Tencent’s brands include WeChat, QQ Instant Messenger, QQ Music, QQ Games, Qzone, and Tenpay. WeChat has approximately 1 billion monthly active users, and allows you to text/chat with your friends like you do on WhatsApp as well as a whole lot more. The New York Times produced an amazing video on WeChat’s power, and I highly recommend you watch it. But what the video doesn’t show is Tencent derives approximately 45% of its revenue from online video games, with Tencent & Netease controlling around 3/4 of China’s mobile game market. Tencent’s second biggest division is social networks where users pay for content like music and movies and can subscribe to skip ads. Online ads is the third largest division. The company also derives revenue from electronic payments and cloud services — which are growing rapidly. Tencent is the “all in one” company with its own versions of Facebook, Google, Netflix and Amazon rolled into one app. The company grew revenue 44% last year as profits increased 37%. This is a fantastic company that’s grown profits every single year since it went public (2008) at 38% per year on average. Still, although Tencent is a screaming success, the stock’s P/E is still just 35. My Fair Value on TCEHY is $34 this year and $44 next year, but I am confident this will be a cornerstone of my Growth Portfolio for years to come.

One Year Chart

Tencent’s financials look amazing. Green across the board with profits growing around 40% per qtr. Last qtr the company had 45% profit growth but this missed analysts estimates of 64% growth. Analysts then dropped 2017 estimates from $0.88 to $0.85. Qtrly profit estimates stayed consistent with last qtr and are 45%, 29%, 44% and 44%. The Est. LTG did just decline a bit from 32% to 29% but that’s still amazing. The P/E of 35 makes this a very reasonably priced growth stock.

Fair Value

This Fair Value chart is a model other companies should strive for. Profits and the stock have grown each and every year. Outstanding! Plus my Fair Value for 2018 is 47% above the recent price of $30 per share.

Bottom Line

Tencent gives investors an “all in one” investment in the Chinese Internet space. The company has grown profits rapidly every year and the stock has climbed consistently. In fact, this might be the best stock anywhere. The only blemish is the company has missed earnings estimates by 2 cents in each of the last two qtrs, and annual estimates have ticked down accordingly. TCEHY ranks 5th in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.