Three Key Reasons Growth Investors Should Consider Tencent Music Entertainment Group

Growth investors aim to find stocks that show exceptional financial growth, as this characteristic helps attract market attention and drive impressive returns. However, identifying promising growth stocks can be a challenge.

This challenge arises because growth stocks often come with above-average risks and volatility. Investing in a stock whose growth story is winding down can lead to significant losses.

The Zacks Growth Style Score is a valuable tool that goes beyond traditional growth metrics to assess a company’s authentic growth potential. Currently, Tencent Music Entertainment Group (TME) is highlighted as a noteworthy growth stock. This company boasts a strong Growth Score alongside a high Zacks Rank.

Research indicates that stocks with the strongest growth characteristics tend to outperform the market. Specifically, stocks that hold a Growth Score of A or B, combined with a Zacks Rank of #1 (Strong Buy) or #2 (Buy), see even stronger returns.

Earnings Growth

Earnings growth is a critical factor for investors, as rising profit levels are what most seek. For growth investors, double-digit earnings growth signals robust future potential and likely stock price increases.

Tencent Music Entertainment Group has an impressive historical EPS growth rate of 8.8%. However, the focus should be on projected growth. The company’s EPS is anticipated to rise by 28.3% this year, significantly outpacing the industry average growth of 23.4%.

Cash Flow Growth

Cash flow is essential for any business, but for growth-oriented companies, accelerated cash flow growth is even more vital. This is because high cash reserves enable these firms to pursue new projects without relying on costly external funding.

Tencent Music Entertainment Group currently enjoys a year-over-year cash flow growth of 18.1%, which surpasses many competitors. This figure contrasts sharply with the industry average cash flow growth of -1.9%.

While present cash flow growth is crucial, it's also helpful to consider historical data. Over the last 3-5 years, Tencent Music’s annual cash flow growth rate has been 19.1%, slightly above the industry average of 18.8%.

Positive Earnings Estimate Revisions

The strength of a stock based on the previous metrics can be further validated through earnings estimate revisions. A trend of increasing estimates is favorable, as historical data shows a strong correlation between such trends and short-term stock price movements.

For Tencent Music Entertainment Group, current-year earnings estimates have seen positive revisions, with the Zacks Consensus Estimate increasing by 1.6% over the past month.

Conclusion

Overall, the positive trends in earnings estimates have landed Tencent Music Entertainment Group a Zacks Rank of #2, along with a Growth Score of B, based on various favorable factors discussed here.

This combination positions Tencent Music Entertainment Group for potential outperformance in the market, making it an attractive option for growth investors looking for promising stocks.

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