Chinese tech companies have been hit by a wave of political surveillance in recent years. For the tech titan Tencent Holdings (OTC: TCEHY), his epic rise to power was put on hold in 2018 when Chinese regulators suspended applications for new games and removed obstacles at a complex regulation system in the land is a never-ending ordeal.

But the Chinese video game and social media giant is also coming under increased surveillance outside its territory. Looking purely at the financial situation, however, Tencent is worth owning – although there are better buys right now.

Regulators setting a speed limit

Tencent is not the only one facing political problems. Large tech companies around the world face all kinds of regulatory controls, creating obstacles to their continued expansion. Regulations could cap Tencent’s rise in the future.

Specifically, the company’s WeChat social platform (a “super app” that combines messaging with e-commerce and digital payments, entertainment, and a myriad of other digital services) is being promoted. scrutiny as it tries to expand beyond China. Tension between India and China over a long-standing border dispute has led to India bans over 100 Chinese apps, including WeChat and the PUBG Mobile video game in which he is invested. The Trump administration is also try to close WeChat in the United States, and a close review of Tencent’s video game business – which includes a stake in Epic Games, responsible for global success Fortnite – is also on the rise.

Granted, the vast majority of Tencent’s income comes from China itself, so the recent roadblocks aren’t going to upend the tech empire. Nonetheless, with the tightening screws on Tencent outside its home market and complex regulations in China still a concern, a speed limit is being placed on Tencent’s potential growth.

But what about finances?

That being said, Tencent is not green behind the ears. He has been navigating controversy and political regulations for years and always finds ways to grow. And even if it boils down to only growing in China, it’s not a terrible place. E-commerce and digital payments – especially in a post-COVID-19 world – are still a high-growth industry on the other side of the Pacific, and Tencent has a duopoly with his peer Ali Baba (NYSE: BABA).

Illustrating how powerful a platform has become, Tencent said it had over 1.2 billion WeChat users at the end of June 2020. Revenue grew 29% year-on-year to 114, 9 billion Chinese renminbi ($ 16.2 billion) in the second quarter of 2020. Operating profit increased 38% to 37.6 billion renminbi ($ 5.3 billion) and free cash flow (revenue minus operating and cash investment expenses) rose 127% to 28.5 billion renminbi ($ 4.0 billion) – adding to the company’s impressive run.

Data by YCharts.

Tencent has accumulated cash and short-term investments totaling 260.0 billion renminbi ($ 36.7 billion), although the total debt reached 259.3 billion renminbi ($ 36.6 billion) at the end June 2020. net cash amounting to tens of billions (as measured in US dollars).

Nonetheless, reflecting its recent impressive results, Tencent stock is trading for a premium 32 times greater than 12-month free cash flow.

Is this a purchase?

Given its sustainable growth, even in tough times, an investor could do a lot worse than buying Tencent right now, although I think Alibaba is the better choice with a bigger war chest on hand and stock trading for a close 37 times after 12 free months. cash flow. If you think China’s middle class and e-commerce industry will continue to grow, I would start with Alibaba first, although Tencent should still be on the shortlist.

However, although I am a shareholder of Tencent, I believe there are more timely purchases currently. South East Asia Limited sea is a much smaller tech conglomerate with massive growth numbers. While Tencent continues to struggle with its overseas ambitions, owning other e-commerce and video game stocks like Sea will be important for investors looking to bet on technological advancements in Asia.