Shares of Tencent Music Entertainment (TME) gained 5.0% overnight to close trading at $14.30. While there was no news about the company, the stock likely rebounded due to strong fundamentals.
We recently identified TME as an attractive pick due to its strong revenue and earnings growth. TME was publicly listed in December 2018. The stock lost 23.0% of its market cap last month despite reporting first-quarter earnings results that exceeded analysts’ estimates.
Investors were spooked about TME’s CEO’s resignation coupled with trade war tensions, which dragged on most Chinese stocks. TME’s core business is, however, insulated against the trade war. Its online music-streaming service generates sales via subscription fees, digital downloads, and advertisements.
Strong revenue growth expected for Tencent
Analysts expect Tencent Music’s sales to rise 37.5% YoY (year-over-year) to $3.78 billion in 2019 and 35.8% YoY to $5.13 billion in 2020. In comparison, its EPS are expected to rise at a compound annual growth rate of 38.0% between 2019 and 2022.
Compare this with TME’s forward PE multiple of 17.7x and the stock looks undervalued. Wall Street has a 12-month average target price of $17.8 for TME, indicating a potential upside of 24.5% from its current price.