Stock (Symbol) |
Tencent Holdings (TCEHY) |
Stock Price |
$45 |
Sector |
| Technology |
Data is as of |
| October 10, 2017 |
Expected to Report |
| Nov 15 |
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 but WeChat has grown to encompass everything you do online. Believe it or not, Tencent derives approximately 45% of its revenue from online video games, with Tencent & Netease controlling around 3/4 of China’s mobile game market. TCEHY’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. This is a fantastic company that’s grown profits every single year since it went public (2008) at 35% per year on average. TenCent grew revenue 55% last year as profits surged 47%. Investors have taken notice of the stock, as it’s risen from $24 to $50 this year. Still, TCEHY still has upside, as my 2018 Fair Value is $57 and rising. This is one of the top growth stocks in the world, yet many American investors are still completely unaware of it. I consider TenCent a core stock for growth investors, and feel the growth opportunity is very bright here. |
One Year Chart |
 These charts and tables were done on October 10th, almost a month ago. The stock’s gone from $45 to $50 during the last five days. To me, everything here looks perfect other than the P/E ratio, which was in the high-30s the last three qtrs. Last qtr TenCent delivered 71% profit growth and blew past analyst estimates of 35% growth. Sales rose a whopping 58%. Qtrly Estimates are for 56%, 63%, 32% and 10% profit growth the next 4 qtrs, with that last qtr needing time to bake. The Est. LTG just increased from 32% a year to a robust 36%. |
Fair Value |
 This Fair Value is really a prototype. It reminds me of Microsoft back-in-the-day. My Fair Value is 45x earnings, but keep in mind estimates have risen lately. 2018’s have gone from $1.09 to $1.27 the last two qtrs. So perhaps the company can earn $1.50 or more next year? Perhaps $2? Maybe a 45 P/E on $2 would hypothetically be a $90 stock? I’m just fishing here, but my point is buy/hold. |
Bottom Line |
 Tencent gives investors an “all in one” investment in the Chinese Internet space. Profits have grown at a good clip every year since the company went public. This stock was undervalued for years, and has now caught up to where it should be. Still, the arc on the chart is pointing up, and a small correction could snowball into a big one as there’s no support for the stock until the high-$20s. TCEHY ranks 4th in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings. This is a FANG-type of investment you buy-and-hold. But if I were looking to take a position, I would buy half now and half later. |
Power Rankings |
Growth Stock Portfolio
4 of 34Aggressive Growth Portfolio 4 of 13Conservative Stock Portfolio N/A |
