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Tencent Holdings Limited (HKG:700): Poised For Long Term Success?

Simply Wall St

Based on Tencent Holdings Limited's (HKG:700) earnings update in March 2019, it seems that analyst expectations are fairly bearish, as a 20% rise in profits is expected in the upcoming year, compared with the higher past 5-year average growth rate of 32%. Presently, with latest-twelve-month earnings at CN¥79b, we should see this growing to CN¥94b by 2020. Below is a brief commentary around Tencent Holdings's earnings outlook going forward, which may give you a sense of market sentiment for the company. For those keen to understand more about other aspects of the company, you can research its fundamentals here.

View our latest analysis for Tencent Holdings

Exciting times ahead?

Longer term expectations from the 42 analysts covering 700’s stock is one of positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To get an idea of the overall earnings growth trend for 700, I’ve plotted out each year’s earnings expectations and inserted a line of best fit to determine an annual rate of growth from the slope of this line.

SEHK:700 Past and Future Earnings, August 13th 2019

From the current net income level of CN¥79b and the final forecast of CN¥140b by 2022, the annual rate of growth for 700’s earnings is 18%. This leads to an EPS of CN¥13.61 in the final year of projections relative to the current EPS of CN¥8.34. As revenues is expected to outpace earnings, analysts expect margins to contract from the current 25% to 23% by the end of 2022.

Next Steps:

Future outlook is only one aspect when you're building an investment case for a stock. For Tencent Holdings, I've put together three key factors you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is Tencent Holdings worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Tencent Holdings is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Tencent Holdings? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.