Tencent, the leading tech company in China, has rewarded its investors with 25% up in share price so far this year. Currently Tencent is trading around $371.

How’s Tencent stock? Let’s take a closer look at it.

What does Tencent do?

Tencent Holdings Ltd., commonly known as Tencent, is a multinational conglomerate company based in China. It stands as a global technology giant, recognized as one of the largest and most valuable companies in the technology sector worldwide.

Tencent operates in various sectors, including social networking, online gaming, entertainment, fintech and payments, cloud computing, artificial intelligence and more.

Tencent’s earnings

In Q1 2024, Tencent exceeded analyst predictions for both revenue and profit. The company reported revenue of 159.5 billion Chinese yuan, surpassing the expected 158.4 billion yuan. Additionally, the profit attributable to equity holders of the company amounted to 41.9 billion yuan, surpassing the anticipated 36.64 billion yuan.

Tencent’s adjusted net profit demonstrated an impressive year-on-year growth of 62%, representing its fastest growth rate since the March quarter of 2021. Furthermore, the company experienced a 6% year-on-year increase in revenue.

Tencent’s valuation

Typically, stocks of companies like Tencent tend to be priced at a premium. However, the current valuation of this stock is relatively reasonable, especially considering its significant decline from the peak it reached in 2021.

As of Q1 2024, Tencent’s stock has a price-to-earnings (P/E) ratio of 20, which is lower than its 5-year average ratio of 27. It’s important to note that this P/E ratio doesn’t account for the value of Tencent’s extensive investment portfolio, which amounts to $117 billion. If we adjust for the value of these investments, the resulting price-to-earnings ratio would be even lower, indicating potentially greater value for investors.

Is Tencent stock a buy?

Apart from its wide range of wholly-owned businesses, Tencent has significant holdings in prominent technology companies globally. For instance, it possesses more than 10% ownership in major e-commerce firms like Pinduoduo and Sea Ltd. This strategic positioning allows Tencent to capitalize on the substantial growth potential of the e-commerce industry.

Additionally, Tencent has either owned or previously held minority stakes in publicly traded companies such as Tesla, Snapchat, and Spotify. These investments provide Tencent with indirect exposure to the growth and success of these leading tech companies.

In essence, investing in Tencent’s stock can be likened to possessing partial interests in a diversified portfolio of high-quality businesses, both within China and beyond.

But investors need to note that Tencent’s business is heavily reliant on the Chinese market. Economic, political, or social factors in China could have a significant impact on the company’s performance.

Before you consider buying the stock, ask yourself if you are willing to accept the uncertainty of investing in Tencent.