Of the 15 analysts tracking Tencent Music Entertainment (TME) stock, eight have given it “buys,” seven have given it “holds,” and none have given it “sells.” Analysts have a 12-month median target price of $17.7 on the stock, which indicates a potential upside of 17.0% from its current price.
Is Tencent stock undervalued?
Tencent is trading at a forward PE multiple of 27.0x. This multiple doesn’t seem too expensive considering the company’s earnings growth rate going forward. TME’s earnings are expected to rise 7.9% in 2019, 36.6% in 2020, and 46.6% in the next five years.
Over 800 million users
TME has over 800 million users, substantially more than its rivals Spotify (SPOT) and Apple Music. However, just 4.0% of its users are paid subscribers compared to Spotify’s ~50.0%.
In the domestic market, TME has to contend with competition from NetEase Cloud Music (NTES), which has stated that it has 600 million users. Alibaba’s (BABA) Xiaomi Music is another streaming platform and has partnered with NetEase.
One key metric that should drive TME’s sales higher is the growth in the total number of music subscribers. iResearch expects the number of users that will translate to paid subscribers in China to rise from 5.3% in 2018 to 8.0% by 2020.