Is Tencent Still Attractively Priced After Its 2025 Rally?

• If you are wondering whether Tencent Holdings is still a smart buy after its big rebound, or if most of the upside is already priced in, you are not alone.
• Despite a recent pullback of 0.2% over the last week and 3.0% over the last month, the stock is still up 46.6% year to date and 49.1% over the past year, with a 102.1% gain over three years.
• These moves have come as investors refocus on Tencent's core strengths, including its dominant WeChat ecosystem, resilient gaming portfolio, and growing fintech and cloud operations. At the same time, easing regulatory pressures in China and renewed optimism around the domestic tech sector have encouraged investors to re-rate leading platforms like Tencent.
• Even after that run, Tencent scores a solid 5/6 on our undervaluation checks, which suggests the market might still be underestimating parts of the story. Next, we will break down how traditional valuation methods stack up for Tencent, and then finish with a more nuanced way to think about what the stock is really worth.

Find out why Tencent Holdings's 49.1% return over the last year is lagging behind its peers.

Approach 1: Tencent Holdings Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business is worth by projecting the cash it can generate in the future and discounting those cash flows back to today.

For Tencent Holdings, the model uses a 2 Stage Free Cash Flow to Equity approach based on its current trailing twelve month free cash flow of roughly CN¥201.2 billion. Analysts provide detailed forecasts for the next few years, and beyond that Simply Wall St extrapolates growth, with projected free cash flow reaching about CN¥593.8 billion in 2035. Each of these future cash flows is discounted back to today to reflect risk and the time value of money.

On this basis, the DCF model estimates Tencent’s intrinsic value at around HK$885.10 per share. Compared with the current market price, this implies the shares are trading at roughly a 31.1% discount, which may indicate that the market is underestimating Tencent’s long term cash generating power despite the recent rally.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Tencent Holdings is undervalued by 31.1%. Track this in your watchlist or portfolio, or discover 912 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 Holdings.

Approach 2: Tencent Holdings Price vs Earnings

For profitable, mature businesses like Tencent Holdings, the price to earnings ratio is a practical way to gauge whether investors are paying a reasonable price for each unit of current profit. In general, companies with higher and more reliable growth, stronger balance sheets, and lower perceived risk deserve a higher, or premium, PE multiple, while slower growth or higher risk should translate into a lower, or discounted, multiple.

Tencent currently trades on a PE of about 23.0x, which is slightly above the Interactive Media and Services industry average of around 21.1x, but well below the peer group average of roughly 61.0x. To refine this comparison, Simply Wall St uses a proprietary Fair Ratio that estimates what Tencent’s PE should be given its earnings growth outlook, profitability, industry, size, and risk profile. For Tencent, this Fair Ratio is calculated at about 29.8x.

Because the Fair Ratio is tailored to the company, it offers a more nuanced view than blunt industry or peer comparisons, which can be skewed by outliers or different business models. With Tencent’s actual PE sitting meaningfully below its Fair Ratio, the stock still appears to be trading at a discount on an earnings based view.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Tencent Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of Tencent’s business to a set of numbers and a fair value estimate. A Narrative is the story you believe about a company, translated into assumptions about future revenue, earnings, and margins, which then flow through to a forecast and a fair value per share. On Simply Wall St, Narratives are an easy, accessible tool on the Community page, where millions of investors share and refine their stories about companies like Tencent Holdings. Once you or the community define a Narrative, the platform compares its Fair Value to the current market Price to help you decide whether Tencent looks like a buy, hold, or sell, and automatically updates that view as new information such as earnings or major news comes in. For example, community Narratives for Tencent currently span from a more cautious fair value near HK$508 per share to a much more optimistic view around HK$814 per share, reflecting very different assumptions about AI, gaming growth, and regulatory risk.

For Tencent Holdings however we will make it really easy for you with previews of two leading Tencent Holdings Narratives:

🐂 Tencent Holdings Bull Case

Fair value: HK$813.65

Implied undervaluation vs last close: approximately 25.0%

Forecast revenue growth: 15%

• Expects AI and the broader Weixin ecosystem, including Video Accounts, Mini Games and Weixin Search, to unlock new high margin revenue streams on traffic Tencent already owns.
• Sees fintech, SaaS and cloud, including WeBank Technology Services and deeper WeCom and Weixin integration, as major growth drivers improving productivity and monetisation.
• Assumes Tencent can grow revenue at around a mid teens CAGR over the next 5 years despite regulatory and competitive risks, with only moderate margin pressure and a 9% risk rate.

🐻 Tencent Holdings Bear Case

Fair value: HK$508.40

Implied overvaluation vs last close: approximately 20.0%

Forecast revenue growth: 12%

• Acknowledges strong long term catalysts such as cloud expansion, dominant gaming franchises, fintech innovation and a powerful social media ecosystem.
• Highlights material headwinds including Chinese regulatory scrutiny, geopolitical tensions, market saturation at home and heavy reliance on gaming revenue.
• Concludes that, even with double digit revenue growth and solid margins, today’s price already bakes in a lot of optimism, leaving limited upside relative to risk.

Do you think there's more to the story for Tencent Holdings? 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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