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Three Reasons Growth Investors Should Consider Tencent Music Entertainment Group

Published October 23, 2024

Growth stocks have become a focal point for many investors due to their potential for above-average financial growth. This unique attribute allows these stocks to catch the market's eye and deliver impressive returns. However, identifying a growth stock that can truly meet expectations often proves to be challenging.

Aside from their inherent volatility, growth stocks typically come with higher-than-average risks. Investors face the danger of investing in a stock whose growth narrative might be coming to an end. Therefore, finding reliable indicators of future growth becomes essential.

The Zacks Growth Style Score, part of the Zacks Style Scores system, goes beyond traditional growth metrics to evaluate a company's real growth potential. Recently, Tencent Music Entertainment Group (NYSE: TME) has been spotlighted as a promising candidate for growth investors. This company not only boasts a favorable Growth Score but also holds a top Zacks Rank.

Research has suggested that companies with superior growth characteristics tend to outperform the market consistently. Moreover, stocks that combine a Growth Score of A or B with a Zacks Rank of #1 (Strong Buy) or #2 (Buy) often see even better returns.

Here are three key reasons why Tencent Music Entertainment Group should not be overlooked by growth investors.

Earnings Growth

At the core of growth investing is earnings growth. Investors are primarily interested in rising profit levels, with double-digit growth being particularly attractive as it signals strong potential for stock price increases. Tencent Music Entertainment Group's historical earnings per share (EPS) growth rate is 8.8%.

However, what is more crucial for current investors is the projected growth. The company’s EPS is anticipated to increase by a remarkable 28.3% this year, significantly outpacing the industry average of 22%.

Cash Flow Growth

For any business, cash flow is vital, but it holds even more importance for growth-focused companies than for those that are mature. Substantial cash flow allows these businesses to pursue new opportunities without needing to seek costly external financing.

Currently, Tencent Music Entertainment Group is showing a year-over-year cash flow growth rate of 18.1%, which is notably higher than many competitors. This rate is particularly impressive compared to the industry average, which stands at -9.4%.

Additionally, examining historical cash flow growth provides further context. The company's annualized cash flow growth rate over the last 3-5 years has been an impressive 19.1%, compared to the industry average of 18.1%.

Favorable Earnings Estimate Revisions

A positive trend in earnings estimate revisions is another critical factor for investors to consider. Empirical data suggests that trends in earnings revisions have a strong correlation with short-term stock price movements.

For Tencent Music Entertainment Group, the current-year earnings estimates have been revised upwards, with the Zacks Consensus Estimate indicating a 0.8% increase over the last month.

Conclusion

All in all, the favorable revisions in earnings estimates have positioned Tencent Music Entertainment Group as a Zacks Rank #2 stock, complemented by a Growth Score of B. These factors suggest that the company has the potential to outperform and is a robust choice for growth investors.

For those seeking promising growth stocks, Tencent Music Entertainment Group stands out as an opportunity not to be missed.

growth, investment, earnings