Should You Buy Tencent (TCEHY) Stock Before 2018?

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The tech industry helped lift markets and indexes in 2017, but as we near the start of 2018, some investors might begin to turn their attention to new industries. Nevertheless, dumping tech stocks might not be the best idea, as signs continue to point to tech as a booming growth industry.

Investors who fear we are nearing a new "Dot-Com bubble" should look at the key difference: Tech companies today, unlike in the late 1990s, are turning profits and growing their sales, as nearly every sector of the economy relies more heavily on new technology (also read: One Big Reason Why Tech Stocks Are Not In the 'Dot-Com Bubble' ).

With that said, let's take a look at a social media giant-which recently surpassed Facebook FB in terms of market value-that investors might want to consider grabbing as we head into 2018.

Tencent Holdings Limited TCEHY

Tencent is a Chinese internet powerhouse that became the first Asian technology firm to hit the $500 billion valuation mark-a feat it achieved near the end of November. The company beat fellow Chinese tech behemoth Alibaba BABA to a half a trillion dollar valuation.

The company owns WeChat, one of China's most popular messaging services. The platform boasts close to 1 billion users. On top of that, Tencent operates in mobile gaming, social media, and news.

Tencent's rapid growth has helped its shares skyrocket a mind-blowing 115% in 2017. And now, with some of its recent moves, it seems that Tencent could be ready to keep on growing in 2018.

Recent Moves

The company recently announced that it plans to purchase a 5% stake in Chinese "superstore" operator Yonghui Superstores Co Ltd. The move will help Tencent expand its physical retail reach in the world's second-largest economy, which boasts a growing middle class.

Furthermore, streaming music power Spotify recently partnered with Tencent's music leg in a deal that saw the two companies buy minority stakes in each other. The move comes ahead of Spotify's highly anticipated transition into a publicly-traded entity (also read: Spotify is Going Public Without an IPO: Will Other Tech Unicorns Follow? ).

Tencent also purchased a roughly 10% stake in Snap SNAP in the second half of 2017. The company also owns a 5% position in Tesla TSLA and plans get into the driverless car business .

More Fundamentals

Tencent is currently a Zacks Rank #2 (Buy) and sports an "A" grade for Growth in our Style Scores system, which helps it earn an overall "B" VGM score.

Based on our current Zacks Consensus Estimates, Tencent's Q4 revenues are expected to soar 63.80% to hit $10.52 billion. In terms of earnings, Tencent fourth-quarter EPS is expected to pop 47.37%, while its full-year earnings are expected to jump 43.75%. The company is expected to report these results in late-March, so this could become a major catalyst for the stock early in the year.

Tencent's current cash flow growth of 39.28% tops the "Internet - Services" industry's average 7.83% growth rate. The company's cash flow growth helps show that Tencent is expanding its cash position, which it should be able to use to fund further innovations.

Tencent is expected to close its current fiscal year on a high note, with substantial top and bottom-line growth projected. What's more, this momentum is backed by strong 2018 projections.

Based on our current consensus estimates, Tencent's full-year 2018 revenues are expected to climb to $50.33 billion, which would mark a 38.17% year-over-year jump. Tencent's earnings are also projected to climb again in 2018, with EPS expected to hit $1.37 per share. This would mark a 31.88% jump.

Looking even farther down the road, Tencent's expected EPS growth over the next three to five years currently rests at an annualized rate of 27.15%, which nearly triples the projections for fellow tech giants Nvidia NVDA and Apple AAPL .

Bottom Line

Tencent is expected to continue to expand in 2018, which comes after it made a number of diverse investments in growing tech companies this year. Yet many investors might fear that they aren't getting in on Tencent at the right time.

But despite its massive gains in 2017, shares of Tencent currently rest nearly 10% below their 52-week high of $56.05 per share. Investors might not find a better time to buy Tencent at this discounted price.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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