Polen Capital: “Tencent (TME) is Reasonably Valued; Could Grow Earnings More than 20% Annually”

Polen Capital, an investment management firm, published its “Polen International Growth” first quarter 2021 investor letter – a copy of which can be downloaded here. A return of -1.14% was delivered by the fund for the Q1 of 2021, trailing its MSCI All Country World benchmark that delivered a 3.49% return for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Polen International Growth Fund, in its Q1 2021 investor letter, mentioned Tencent Music Entertainment Group (NYSE: TME), and shared their insights on the company. Tencent Music Entertainment Group is a Nanshan, Shenzhen-based music entertainment platform that currently has a $25.7 billion market capitalization. Since the beginning of the year, TME delivered a -20.95% return, while its 12-month gains are up by 27.17%. As of May 14, 2021, the stock closed at $15.21 per share.

Here is what Polen International Growth Fund has to say about Tencent Music Entertainment Group in its Q1 2021 investor letter:

“Chinese platform Tencent was a leading contributor to returns in the quarter as the company reported strong fourth quarter and full-year business results. Tencent serves more than 1 billion users globally with a variety of utilities, and it is the largest video game platform in the world. Beyond communications and gaming, Tencent offers users numerous other valuable services, from social media to varied digital content and digital payments to transact online and offline. Mobile gaming now accounts for roughly 30% of Tencent’s $70 billion in annual revenues. We find Tencent’s gaming business to be a juggernaut, which we estimate serves nearly 550 million Chinese users and another 200 million outside of China.

Gaming globally is a category we find interesting.

Gamers invest time, effort, and money in developing characters or teaming up with friends to achieve the games’ objectives on
screen. Interesting video game content, especially with more social overlays, enjoys wide-ranging adoption globally.

As a leading global content producer and a distributor of both its own and third-party content within China, Tencent plays a large role in this fascinating market. We marvel at the idea that, in the years to come, families may sit on the couch on Sunday afternoons and tune into the latest e-sports competition, not a live football game, to see the best gamers in the world compete. Though it contributes tens of billions in sales to Tencent, we believe this rapidly growing category is poised to continue growing well into the future. We believe Tencent is reasonably valued and could grow earnings greater than 20% annually for the next five years.”

Our calculations show that Tencent Music Entertainment Group (NYSE: TME) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Tencent Music Entertainment Group was in 26 hedge fund portfolios, compared to 24 funds in the third quarter. TME delivered a -42.30% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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Disclosure: None. This article is originally published at Insider Monkey.