Is Tencent Music Entertainment Group (TME) Still Attractive After Recent Share Price Pullback?

• This article is designed to help you weigh up whether Tencent Music Entertainment Group’s share price still offers value after a strong run, or if most of the opportunity is already reflected in the price.
• The stock recently closed at US$16.08, with a 1 year return of 46.0% and a 3 year return of 91.2%. Over the past week, month and year to date, however, it has shown declines of 7.9%, 9.4% and 10.0% respectively.
• Recent coverage has focused on Tencent Music Entertainment Group’s position within China’s online music and audio market, including product updates on its streaming platforms and licensing relationships with major labels. There has also been attention on how regulatory developments around digital content and the broader Chinese tech sector shape investor expectations for companies such as Tencent Music Entertainment Group.
• Simply Wall St currently assigns Tencent Music Entertainment Group a valuation score of 6/6. Next, we will look at how different methods, including cash flow models and market multiples, arrive at that view. We will then finish with a more holistic way to think about what the stock might be worth.

Tencent Music Entertainment Group delivered 46.0% returns over the last year. See how this stacks up to the rest of the Entertainment industry.

Approach 1: Tencent Music Entertainment Group Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business could be worth today by projecting its future cash flows and then discounting those back to a present value.

For Tencent Music Entertainment Group, the model uses a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in CN¥. The latest twelve month free cash flow is CN¥9.1b. Analyst and extrapolated estimates suggest free cash flow reaching CN¥24.5b in 2035, with intermediate years such as 2026 and 2030 forecast at CN¥11.1b and CN¥18.3b respectively.

Simply Wall St’s cash flow projections and discounting produce an estimated intrinsic value of US$23.86 per share. Compared with the recent share price of US$16.08, this implies that Tencent Music Entertainment Group is trading at a 32.6% discount to this DCF estimate, which indicates that the shares may be undervalued on these assumptions.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Tencent Music Entertainment Group is undervalued by 32.6%. Track this in your watchlist or portfolio, or discover 881 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Tencent Music Entertainment Group.

Approach 2: Tencent Music Entertainment Group Price vs Earnings

For a profitable company, the P/E ratio is a useful way to gauge what the market is currently willing to pay for each dollar of earnings. It links the share price directly to earnings, which tend to be more stable than short term revenue or book value.

What counts as a “normal” P/E depends on what investors expect for future growth and how much risk they see in those earnings. Higher expected growth or lower perceived risk can support a higher P/E, while slower expected growth or higher risk usually point to a lower multiple.

Tencent Music Entertainment Group currently trades on a P/E of 16.39x, compared with the Entertainment industry average of 19.40x and a peer group average of 97.34x. Simply Wall St also calculates a proprietary “Fair Ratio” of 22.57x, which is the P/E it would expect for the company after accounting for factors such as earnings growth, profit margins, industry, market cap and company specific risks. Because this Fair Ratio is tailored to the company, it can be more informative than a simple comparison with peers or the broader industry. On this basis, the current 16.39x P/E sits below the 22.57x Fair Ratio.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1447 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Tencent Music Entertainment Group Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which Simply Wall St hosts on the Community page used by millions of investors.

A Narrative is your story about a company that sits behind the numbers, where you set your own view of Tencent Music Entertainment Group’s future revenue, earnings and margins, then connect that to a fair value estimate. Instead of looking at a P/E or DCF in isolation, a Narrative links what you think is happening in the business to a financial forecast, and then to what you believe the shares might be worth. Narratives on the platform are easy to set up, update automatically when new information such as earnings or news appears, and help you quickly compare your Fair Value to the current share price so you can decide whether the price looks attractive or expensive to you. For Tencent Music Entertainment Group, one investor might build a Narrative with a higher fair value based on stronger assumed growth and margins, while another might set a lower fair value using more cautious forecasts and a higher discount rate.

Do you think there’s more to the story for Tencent Music Entertainment Group? Head over to our Community to see what others are saying!

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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