What's more, in its most recent quarter, the company reported growth in revenue and operating profits -- climbed 35% and 46% respectively with absolute margins registering at 2.3%. In other words, PCs are dying everywhere except those made by Lenovo.
However, it's challenge remains growing its U.S. market share to match what it has established, not only in China, but in markets such as India and Russia where its enjoys pie slices of 17% and 12% respectively.
As it seeks to enter the realm of mobile devices, I wonder if Lenovo has just become bored with its PC success or does it really see a significant growth opportunity outside of its core business? Microsoft has been trying to take on Apple and Google for years in this area with little success.
Although I sound a bit apprehensive about its prospects, Lenovo appears to be making some decent strides by having already amassed a 12% share in China and quickly becoming the country's second largest smartphone company behind Samsung.How undervalued does Lenovo appear to be? Projecting just 2% free cash flow compound growth over the next decade is sufficient to fuel a target price well into the $20s, even with an above-average discount rate. Although I don't think Lenovo is going to get much attention until investors feel better about the health of China's economy, I believe this is an undervalued way to play ongoing IT hardware demand growth in multiple emerging markets.