## Tencent Music Entertainment Group (TME): A Top Growth Pick with Earnings and Cash Flow Potential
Growth stocks are highly sought after by investors due to their ability to generate above-average financial growth, captivating the market’s attention and delivering exceptional returns. However, identifying a growth stock with true potential can be challenging. Volatility and above-average risk are inherent to these stocks, and there’s always the possibility of investing in a company whose growth story is nearing its end. Fortunately, the Zacks Growth Style Score, a powerful tool that analyzes a company’s real growth prospects beyond traditional metrics, simplifies the process of finding cutting-edge growth stocks.
The Zacks system currently recommends Tencent Music Entertainment Group Sponsored ADR (TME) as a prime example. This company boasts a favorable Growth Score and a top Zacks Rank, indicating strong growth potential and a favorable investment outlook. Research has shown that stocks with outstanding growth characteristics consistently outperform the market. This trend is even more pronounced for stocks that combine a Growth Score of A or B with a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Here are three key factors that make Tencent Music Entertainment Group a compelling growth pick:
1. Earnings Growth:
Nothing is more crucial to growth investors than earnings growth. Surging profit levels are the ultimate goal, and double-digit earnings growth is highly desirable as it signals strong prospects for the company and potential stock price gains. While Tencent Music Entertainment Group’s historical EPS growth rate is 8.8%, investors should focus on the projected growth. The company’s EPS is expected to grow by 28.3% this year, outpacing the industry average of 22%, highlighting its exceptional growth potential.
2. Cash Flow Growth:
Cash is the lifeblood of any business, but strong cash flow growth is even more vital for growth-oriented companies than mature ones. This is because high cash accumulation allows these companies to pursue new projects without resorting to expensive external funding. Tencent Music Entertainment Group currently boasts a year-over-year cash flow growth of 18.1%, surpassing many of its peers and the industry average of -9.4%. While investors should prioritize current cash flow growth, reviewing the historical rate provides valuable context. The company’s annualized cash flow growth rate has been 19.1% over the past 3-5 years, exceeding the industry average of 18.1%.
3. Promising Earnings Estimate Revisions:
Beyond the fundamental metrics discussed above, investors should consider the trend in earnings estimate revisions. A positive trend indicates a favorable outlook. Empirical research has shown a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Tencent Music Entertainment Group has witnessed upward revisions in current-year earnings estimates. The Zacks Consensus Estimate for the current year has surged by 0.8% over the past month, demonstrating a strong belief in the company’s future performance.
Bottom Line:
The combination of positive earnings estimate revisions and strong growth fundamentals has earned Tencent Music Entertainment Group a Zacks Rank #2 stock and a Growth Score of B. This combination suggests that Tencent Music Entertainment Group is a potential outperformer and a solid choice for growth investors seeking to capitalize on its impressive growth trajectory.
