3 Reasons Why Growth Investors Should Consider Tencent Music Entertainment Group (TME)

Growth investors are on the lookout for stocks that exhibit above-average financial growth. This characteristic tends to attract attention from the market and can lead to impressive returns. However, finding a strong growth stock is not always an easy task.

The challenge lies in the fact that these growth stocks often come with higher-than-average risk and volatility. Investing in a company whose growth trajectory is flattening or declining can result in significant financial loss.

Fortunately, there are tools available, such as the Zacks Growth Style Score, which goes beyond traditional evaluation methods to assess a firm's genuine growth potential. Currently, Tencent Music Entertainment Group Sponsored ADR (TME) stands out as one of the recommended stocks with favorable growth attributes and a strong Zacks Rank.

Research indicates that stocks with superior growth characteristics tend to consistently outperform the market. In particular, those with a Growth Score of A or B, alongside a Zacks Rank of #1 (Strong Buy) or #2 (Buy), achieve even better returns.

Here are three compelling reasons why Tencent Music Entertainment Group should be on growth investors' radar.

Earnings Growth

One of the key indicators of a company’s success is its earnings growth. For growth investors, double-digit earnings growth is ideal, as it suggests strong prospects and potential stock appreciation. While Tencent Music has an historical earnings growth rate of 8.8%, what’s more exciting is the projected growth rate. Analysts expect the company's EPS to grow by an impressive 28.3% this year, outpacing the industry average of 23.4%.

Cash Flow Growth

Cash flow is crucial for any business, but especially for growth-oriented companies. A higher rate of cash flow growth enables these businesses to invest in new projects without needing to rely on costly external funding. Currently, Tencent Music Entertainment Group enjoys an 18.1% year-over-year cash flow growth, significantly higher than its peers and the industry average, which stands at -1.9%. Additionally, the company has demonstrated an annualized cash flow growth rate of 19.1% over the past three to five years, compared to the industry’s 18.8% average.

Encouraging Earnings Estimate Revisions

Another reliable metric for assessing a stock's potential is the trend in earnings estimate revisions. Positive momentum in earnings forecasts generally correlates with rising stock prices. In the case of Tencent Music Entertainment Group, current-year earnings estimates have been revised upwards, with the consensus estimate increasing by 1.6% in just the last month.

Conclusion

Given the favorable earnings estimate revisions, Tencent Music Entertainment Group has earned a Zacks Rank of #2, along with a strong Growth Score of B. These positive indicators suggest that the company is well-positioned for future performance, making it an attractive option for growth investors.

growth, investors, earnings