Lenovo (SEHK:992): A Compelling Undervaluation Amidst Strong Fundamentals and Growth

The valuation gap in Lenovo Group (SEHK:992) presents a compelling case for investors seeking undervalued opportunities in the technology sector. Despite robust revenue and earnings growth, the company's stock trades at a significant discount relative to both its historical performance and industry peers. This discrepancy suggests a potential mispricing that warrants closer scrutiny.

Price-to-Earnings (P/E) Ratio: A Stark Disconnect

As of October 2025, Lenovo's P/E ratio ranges between 9.78 and 10.58, according to CompaniesMarketCap. That is a sharp decline from its 2024 level of 12.8, as shown by Macrotrends. This metric places the company firmly in "value stock" territory, trading at less than one-third the P/E of the broader Information Technology sector (40.65), per Siblis Research. Such a disparity is puzzling given Lenovo's 22% year-on-year revenue growth in FY2025, which pushed total revenue to $69.1 billion, and a 37% surge in net income to $1.38 billion, as reported by Simply Wall Street. Even more striking is the 2.0% profit margin achieved in FY2025, up from 1.8% in 2024 (the Simply Wall Street report also highlights this), indicating improved operational efficiency.

The disconnect becomes clearer when comparing Lenovo's earnings growth to its valuation. Earnings per share (EPS) rose from $0.084 in 2024 to $0.11 in 2025 (the Simply Wall Street analysis), yet the stock's P/E remains stubbornly low. Analysts attribute this to market skepticism about the sustainability of growth in the PC hardware segment, which still accounts for 73% of revenue (Simply Wall Street). However, the company's 108% year-on-year net income growth in Q1 2025/26 (Simply Wall Street) and 30% AI PC penetration (Simply Wall Street) signal a diversification strategy that could mitigate sector-specific risks.

Price-to-Book (P/B) and Price-to-Sales (P/S) Ratios: Further Evidence of Undervaluation

Lenovo's P/B ratio of 2.59 is modest compared to its historical range (1.25–4.86) and industry benchmarks, according to GuruFocus. By contrast, the 4.1x median EV/Revenue multiple for SaaS companies is shown in the Raisek benchmarks. This suggests the market is undervaluing the company's tangible assets and brand equity. Meanwhile, its P/S ratio of 0.30 (Simply Wall Street valuation data) is exceptionally low, even by industry standards. For context, the median P/S for private SaaS firms in 2025 is 4.1x (Raisek), highlighting a stark valuation gap.

A discounted cash flow (DCF) analysis further underscores this point. According to the Simply Wall Street valuation, Lenovo's intrinsic value is estimated at HK$23.13, implying the stock is undervalued by 51.8%. Analysts have also set a 12-month average price target of HK$13.44 (the Simply Wall Street valuation), suggesting potential for significant appreciation.

Growth Prospects and Strategic Positioning

Lenovo's long-term strategy, centered on hybrid AI infrastructure and operational excellence, positions it to capitalize on the AI-driven computing boom. R&D spending increased by over 10% year-on-year (Simply Wall Street), and non-PC revenue now accounts for 47% of total sales (Simply Wall Street). These developments align with broader industry trends, as AI PCs and infrastructure solutions gain traction.

While the company's three-year revenue growth forecast of 6.3% (Simply Wall Street) lags behind the 11% growth rate of the Asian tech sector, its margin expansion and diversification efforts could close this gap. The Intelligent Devices Group (IDG) remains a cornerstone, but the AI segment's rapid adoption—30% of shipments are now AI PCs (Simply Wall Street)—signals a transformative shift.

Conclusion: A Mispriced Opportunity

Lenovo's valuation metrics—P/E, P/B, and P/S—fail to reflect its strong earnings growth, margin expansion, and strategic pivot toward AI. At current prices, the stock offers a compelling risk-reward profile for investors willing to look beyond short-term sector biases. As the company executes its hybrid AI vision and scales non-PC revenue streams, the valuation gap is likely to narrow, unlocking value for long-term holders.