Is $HK:0700 Tencent still Undervalued Now?

Is Tencent $TCHEY still undervalued today? Here's how I see it.

A lot of people have been questioning Tencent’s valuation lately, so I ran a quick check through some numbers.

They're currently trading at:

~22x P/E

~17x forward P/E

~1x PEG ratio

On the surface, that’s fair. But here’s where it gets more interesting—Tencent holds ~$12B USD in net cash and a listed investment portfolio worth ~$137B USD. That’s close to $150B USD in liquid assets, which you can strip out from its ~$700B USD market cap. That implies the core business is being valued at around $550B USD.

One of my go-to valuation metrics for Tencent is price-to-operating cash flow. This strips out the noise from investment markdowns and focuses on the cash generated by its actual operations. Today, they’re trading at ~16x, compared to a historical average closer to 22–25x. That’s a meaningful discount.

Yes, they’re no longer growing EPS at 30–40% like they used to. Today’s growth sits around 16–17%, so a de-rating is fair. But even against this backdrop, 16x cash flow for a business with Tencent’s scale, moat, and optionality doesn’t feel excessive.

If you run the numbers, a simple re-rating back to 20x cash flow (which is what they traded at in 2021) suggests ~25% upside from here. In my books, fair value sits around HKD $600–650 per share, compared to today’s ~$500. So I’m happy to just hold and let this compounder run its course.

Not a prediction, just perspective. But in time, I do think this can be a 3–5x returner from my entry price. And I’ve got the patience to wait.