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What Does Tencent Music Entertainment Group's (NYSE:TME) Share Price Indicate?

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Tencent Music Entertainment Group (NYSE:TME) saw significant share price movement during recent months on the NYSE, rising to highs of US$16.02 and falling to the lows of US$7.23. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Tencent Music Entertainment Group's current trading price of US$7.87 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Tencent Music Entertainment Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Tencent Music Entertainment Group

What is Tencent Music Entertainment Group worth?

Great news for investors – Tencent Music Entertainment Group is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Tencent Music Entertainment Group’s ratio of 21.1x is below its peer average of 29.16x, which indicates the stock is trading at a lower price compared to the Entertainment industry. However, given that Tencent Music Entertainment Group’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Tencent Music Entertainment Group generate?

earnings-and-revenue-growth
earnings-and-revenue-growth

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -0.7% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Tencent Music Entertainment Group. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Although TME is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to TME, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on TME for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So while earnings quality is important, it's equally important to consider the risks facing Tencent Music Entertainment Group at this point in time. While conducting our analysis, we found that Tencent Music Entertainment Group has 1 warning sign and it would be unwise to ignore this.

If you are no longer interested in Tencent Music Entertainment Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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