Chinese tech darling Tencent Holdings (OTC: TCEHY) has lost nearly $74 billion in market value since January. But this correction didn’t spook one money manager, who sees the stock rising past its historic high.
Caroline Maurer, who heads up greater China equities for BNP Paribas Asset Management, has 9% of assets invested in Tencent. She knows what she’s talking about. Maurer oversees the Harvest Equity China A-Shares Fund, which has beaten 99% of its peers over the last 3 years. The fund counts Tencent and Alibaba (NYSE: BABA) as its two largest holdings.
According to Maurer, the bears on Tencent are short-sighted. In Maurer’s view, Tencent’s smaller rivals will be unable to achieve the massive growth that Tencent has seen in the past. For example, Tencent’s WeChat app has more than 1 billion active users, and with such an active—and huge—user base, it’s a whole lot easier to produce the next “big hit” in games, cloud-based services, artificial intelligence, or payments.
“I’m relaxed about it,” Maurer said pointing to Tencent’s slump this year. “When you have a billion users, you just monetize it gradually. You don’t have to deliver all the earnings in a year.”
Tencent hit a record high on January 26. At the time, the company was valued at 51 times earnings. Currently, Tencent trades at nearly 12 times book value, and has a market cap of $506 billion.
“Things can get short-term expensive on just a few quarters,” Maurer said. “That’s fine… I don’t see a significant change in the sustainability or viability” of Tencent’s business model.
Maurer isn’t alone. Muranaka Ryushi, the Head of Research at Shinsei Corporate Management, thinks Tencent will move to new highs in the coming months, even surpassing the record set in January.
“We’ve yet to eclipse the high in the owner of WeChat, so I take [the] current drop, which comes amid apparent profit-taking among heavyweights, as a short-term positive. We should be able to move up and break through the recent highs,” Ryushi said.
Despite its recent challenges, Ryushi argues that the Chinese tech giant is still a consumer staple and that its business is largely recession-proof.
Part of what makes Tencent so attractive is its diversification across its businesses. Many refer to the company as China’s Facebook (NASDAQ: FB), but the company is so much more than that. By many respects, Tencent is also China’s YouTube, its Spotify (NYSE: SPOT), and its PayPal (NASDAQ: PYPL).
Not only that, but the company operates a massive online gaming business and cloud business, both of which are growing at solid rates.
Tencent saw revenues of $37.5 billion last year and with its three operating segments growing at 33% or more per quarter, its potential for further growth is extremely promising.
So where could Tencent’s price be headed? Reaching January’s high from today’s close implies over a 13% gain. And considering the company’s business segments and growth potential, I’d say that 13% is an absolute minimum and much higher prices could be on the horizon.