China’s Tencent Holdings Ltd. (700), the best-performing major technology stock worldwide in the past five years, is mirroring gains by the biggest U.S. computer companies at the height of the dot-com bubble.
The CHART OF THE DAY compares Tencent’s 1,246 percent advance in Hong Kong trading since March 2009 against the rallies in Microsoft Corp. (MSFT), Cisco Systems Inc. (CSCO) and Intel Corp. (INTC) before the stocks peaked about 14 years ago. The lower panel shows Tencent shares trade 10 percent higher than the average 12-month price target of 27 analysts tracked by Bloomberg.
Surging demand for Tencent’s online games, e-commerce platform and WeChat social-networking app in the world’s most-populous nation has helped the company boost earnings at a 48 percent annual rate since 2009 to become Asia’s largest Internet business. While ABCI Securities Co. says the advance is built on stronger profits than many U.S. stocks during the 1990s bubble, Shenyin & Wanguo Securities Co. says Tencent is becoming a riskier bet after its valuation reached an almost six-year high.
“A rally like this cannot go on forever,” said Gerry Alfonso, a trader at Shenyin & Wanguo in Shanghai. “There is upside on this stock, but it is clearly a more risky stock to buy than a few months ago.”
Shares of Microsoft, Cisco and Intel climbed between 1,078 percent and 3,432 percent in the five years through March 10, 2000 -- when the Nasdaq Composite Index peaked -- to become the world’s most valuable technology companies. The trio plunged between 55 percent and 81 percent over the next three years on concern valuations in the technology industry overshot the potential for earnings growth.
The gain in Tencent, the best performing technology company with a market value of at least $20 billion, left it trading at the biggest premium over analysts’ price targets among large-capitalization peers. The stock is valued at 60 times reported profits, the most among Asia’s top 100 companies. Cisco’s price-to-earnings ratio was 196 on March 10, 2000, versus 63 for Microsoft and 52 for Intel.
Jerry Huang, a director of investor relations at Tencent, declined to comment, citing restrictions before the company reports earnings on March 19.