So what’s going on here?

The rise

It’s hard to put my finger on exactly why the RC365 share price rose more than 700% in the year to July.

One trigger may have been the (possibly) sponsored article entitled ‘Missed Nvidia? This London-based AI stock has the potential to achieve a remarkable surge of over 1,000%’.

Ironically, when the article started circulating around April, investors hadn’t missed the Nvidia rally. The chipmaker has seen its share price rise 70% since then.

This article also overlapped with several announcements including a memorandum of understanding with the Hong Kong-listed Hatcher Group, centred around delivering solutions in the field of artificial intelligence (AI).

Other announcements included:

• The purchase of Mr Meal Production Limited
• New business collaborations with APEC Business Services
• A deal to feature its brand on Mastercard credit cards for Hong Kong residents
• A deal to feature its brand on Mastercard credit cards in Malaysia

However, there is little evidence these contracts justified its soaring share price.

The fall

Since the summer, RC365 shares have fallen from heights around 180p. At its peak, the stock was trading at 133 times sales. That’s incredibly expensive, considering a price-to-sales ratio of 10 is normally considered expensive.

By comparison, at its peak, Nvidia was trading around 40 times sales. However, the GPU (Graphics Processing Units) maker has delivered earnings beat after earnings beat and we’ve thus seen the company’s price-to-sales ratio fall dramatically. On a forward basis, Nvidia now trades at 20.1 times earnings.

Moreover, results have failed to impress. If anyone thought RC365 would deliver Nvidia-like growth, they’ve certainly been wrong.

In fact, it’s still loss-making. Losses for the 12 months to 31 March amounted to HKD5.4m (£530k), up from HKD3.9m in the previous year. However, at least on a positive note, revenue increase by 109% to HKD16.9m (£1.6m).

Latest update

RC365 has continued making deals and announcements, but none of them have positively influenced the share price since the summer.

For example, in the company’s latest announcement, it said that Regal Crown Technology — a RC365 subsidiary — would be a co-sponsor of the Hong Kong Economic Summit 2024, organised by Metro Finance.

The event took place on 4 December at the Four Seasons Hotel Auditorium in central Hong Kong, however there was surprisingly little coverage.

But RC365 said the event brought together influential leaders to share insights on the strengths of Hong Kong and ways to foster diversification of industries.

The post Down 95.2%, what’s going on with the RC365 share price? appeared first on The Twelfth Magpie.

Today, one RC365 share costs just 14p, which makes it a penny stock again. Indeed, the share price is now actually lower than it was prior to the almighty rise.

AI association

As a quick reminder, RC365 Holding specialises in software development. Through its subsidiary, Regal Crown Technology, it offers IT and payment gateway solutions in China and Hong Kong.

It’s widely believed the share price started rising in response to numerous online posts (by different authors) highlighting RC365 stock.

One was entitled ‘Missed Nvidia? This London AI stock could jump over 1,000%’.

These posts said that buying RC365 shares today could be like investing in Nvidia or Apple decades ago.

Nvidia is a US technology giant whose computer chips are the brains behind artificial intelligence (AI) systems. ChatGPT, for example, is trained on tens of thousands of the company’s graphics processing units (GPUs).

A lower valuation

RC365’s market value has fallen from £175m in July to just £18m today.

Another consequence of the share price decline is that the stock’s price-to-sales (P/S) ratio is also lower. It has dropped to 10.95.

For context, a P/S ratio over 5 is generally considered expensive by many investors. That said, some companies expecting to generate high future sales growth regularly trade at more than that.

A price-to-earnings (P/E) ratio cannot be used to value the shares as the company has so far been loss-making.

Recent developments

There have been two recent updates given by the company. Neither have benefitted the share price.

First, the firm announced in late September it had set up a new subsidiary in Malaysia. The Southeast Asian country’s economy grew at the quickest pace in more than two decades last year.

Second, the company said in October that its RCPay subsidiary in Hong Kong plans to establish a fintech collaborative platform. This is with Koperasi Usaha Maju Kuala Lumpur (KOMAJU), a Malaysian government-founded organisation.

Under this memorandum of understanding, the company will provide both online and offline Mastercard payments solutions. Meanwhile, KOMAJU will provide and manage the services for domestic and international clients.

Both parties intend to cater to the needs of corporate and small- and medium-sized enterprises (SMEs). Their goal is to reach 5,000 card users within the Southeast Asia region by the first half of 2024.

However, a formal signed agreement has yet to be announced.

Looking forward

In its annual report for the year ended in March, the company’s revenue was HK$16.8m (£1.7m). That was more than double the year before, but the net loss also increased to HK$5.4m (about £550k).

It should be noted that the release of this annual report in July coincided with the start of RC365’s share price collapse.

Going on the release date of the last interim report, the company’s H1 results for its current financial year should be published in December.

However, no City analysts are currently covering the stock. So there’s nothing to guide investors on what to expect, other than management saying in July that it “continues to be optimistic about the outlook for FY24”.

The post What’s going on with the RC365 share price? appeared first on The Twelfth Magpie.

But is there a recovery on the cards? Let’s take a closer look.

Valuation

If I bought RC365 shares today, would I be getting a good deal? The evidence suggests not.

Let’s start by looking at the price-to-sales (P/S) ratio. RC365 isn’t profit-making, so we can only assess its revenues and losses.

The Hong-Kong-based firm currently trades at 36.3 times revenues. This is phenomenally expensive as a company with a P/S ratio above 10 is normally considered expensive.

For the purpose of comparison, I’ve compared the firm with Nvidia — one of the most expensive stocks by trailing 12 month (TTM) P/S.

The big difference is that Nvidia’s forward P/S ratio is approximately half its TTM ratio, reflecting the vast forward demand for its GPUs. As far as we can tell, RC365’s forward P/S is very similar to its TTM ratio.

It’s worth highlighting that Nvidia’s gains have actually outpaced RC365 now. At one point however, the UK-listed firm had experienced near 800% share price growth.

Growth prospects

RC365 has made a significant number of announcements this year. These include:

• The acquisition of Mr Meal Production Limited
• Collaborations with APEC Business Services
• An memorandum of understanding (MoU) established with Hatcher Group, focusing on the delivery of an AI solution
• A deal to feature its brand on Mastercard credit cards intended for Hong Kong residents
• A deal to feature its brand on Mastercard credit cards intended for Malaysia

While it may look like RC365 has been busy, there’s little concrete evidence these deals will transform the company’s fortunes.

In fact, the Malaysia deal, which allows RC365 to issue and manage Mastercard Prepaid Card services in the country, is expected to be rolled out to just 40 customers and 1,200 cardholders by 31 December 2024.

If this is anything to go by, these deals may have a limited impact on growth prospects.

Worth the valuation?

In July, RC365 announced that revenue had doubled over the FY2023 to HK$16.9m (£1.5m). Meanwhile, losses extended to HK$5.4m (£530k), up from HK$3.9m in the previous year.

While we can see significant revenue growth, even if the current trajectory is sustained, the valuation is hard to justify.

Personally, I expect to see further downward pressure on the share price until its P/S ratio falls below 10.

This also raises the question as to why the RC365 share price surged in the first place.

Personally, I believe a possibly sponsored article titled “Missed Nvidia? This London-based AI stock has the potential to achieve a remarkable surge of over 1,000%“, may have been the reason.

With investors hot on AI this year, the comparison with GPU-maker Nvidia likely sent demand for the stock soaring.

With less than half the shares of this relative minnow floated, an increase in demand would have had a profound impact on the share price.

The post Can RC365 shares recover to 180p? Here’s what the charts say appeared first on The Twelfth Magpie.

Overvalued with no fundamentals

The RC365 share price is up 110% this year. This has led many investors to believe it has the potential as an artificial intelligence penny stock to rival Nvidia‘s monumental gains. However, RC365 is actually just a payments company. It actually has little real exposure to artificial intelligence (AI). This is why certain investors have labelled it a meme stock.

With price-to-sales and price-to-book ratios of around 70 and 30, respectively, RC365 shares are fundamentally overvalued. This is especially the case when the company is unprofitable with less than £2m in revenue to show for it. For a fledgling business bleeding cash, these valuation multiples make absolutely no sense fundamentally.

Opaque financials

Aside from that, the firm provides little transparency into its financials beyond basic top-line figures. The lack of details on segment performance, costs, cash flow, and outlook makes it nearly impossible to accurately value the stock.

This opacity enables speculative hype — rather than fundamentals — to drive the stock price. As such, it’s a recipe for volatility and potential disaster when reality sets in. This is something most novice investors would have experienced during the 2020/21 bull market. Numerous SPACs and penny stocks went public with lofty valuations that were based purely on hype, only for them to lose most of their value in the months and years that followed.

For investors, the inability to accurately value this stock due to the lack of financial details is a bright red flag. It results in hype and hearsay to fill the information vacuum as the share price disconnects further from any reasonable valuation, as has been the case in the year to date.

I’d steer clear

While the RC365 share price could keep rising in the short term, it seems like any gains are going to be likely driven by hype rather than financial performance.

Huge insider ownership is another red flag for me. After all, CEO Chi Kit Law holds nearly 70% of the shares. This concentration poses major risks, as the share price could plummet rapidly if he starts selling, especially considering the rise of the stock this year.

Moreover, it indicates that very limited floats and liquidity exist in the market for other investors. Hence, any change in insider sentiment could have an outsized impact on the stock volatility.

Of course, the company itself could go on to do great things, but I’d only invest once I started to see that happening and at a more sensible share price.

But for investors who are seeking exposure to AI, higher-quality, larger-cap tech stocks are much safer investments. I see better underlying investment cases in other stocks such as Nvidia and TSMC which could grant me similar returns in the medium-to-long term.

The post 1 penny stock I’d avoid like the plague right now appeared first on The Twelfth Magpie.

At just a few pennies for much of the year, the shares went through the roof in July. When the price reached a 180p peak, it had soared by 700% in little more than a month.

Back at 54p, at the time of writing, could we be set for another surge? And never mind 100p, could RC365 shares smash through 200p?

Some numbers

To try to decide, we could look at profits. Except there aren’t any right now, as the company posted a loss for 2022-23. Revenue did double, but to only about £1.7m. That’s a price-to-sales (P/S) ratio of 49. Eek!

I can’t find any forecasts right now. Analysts aren’t always right, but they do help, and I use their opinions quite a lot. But, there are no forward ratios (like price-to-earnings, P/E), which is a pain.

Still, the RC365 stock valuation has to be based on potential future earnings, that much seems clear.

And if we can’t quantify it, can we go by general growth feelings?

The AI boost

RC365 is being compared to US chip giant Nvidia, and it’s all down to artificial intelligence (AI).

Nvidia stock has more than trebled in the past 12 months. But only a short time ago, the potential benefits of AI were largely unquantifiable. Just as they are with RC365 right now.

But there’s a big difference. Nvidia had concrete plans and we knew the direction the company was going. It did, after all, have a long and profitable history behind it.

It’s also a global tech giant with its technology in millions of computers around the world. And it holds thousands of technology patents.

Potential for 200p?

So there’s great potential for the future of AI, yes?

I’d say there is, for sure. But I really don’t know how much of it will benefit a small company in Hong Kong that mostly does payment systems and things like that.

Still, to get back to the question, could the RC365 share price break 200p?

Well, yes, I really think it could. Whether it might stay there though, is a different question.

Share prices often soar way past the valuations that their current earnings suggest. The Nvidia P/E ratio peaked close to 150. Even today, at around 100, it’s very high compared to market averages.

Would I buy?

But any 200p surge would, I’m sure, only be based on sentiment. We’re looking at a penny stock here, with a market-cap of just £83m, and annual revenue of under £2m.

It might not take much of a buying spree to send a stock like this flying. But then it might not need too many sellers to send it crashing.

And that says two things about penny stocks. The risk can be big, and it can take nerves of steel to buy them.

So 200p next, or 2p? That’s a finger-in-the-air one for me. I’m out.

The post Can the RC365 share price soar past 200p? appeared first on The Twelfth Magpie.

Artificial gains?

RC365 may be an AI stock to many investors, which has led to a surge in its share price. But upon closer inspection, the stock’s performance seems to have been the result of people buying into what they think is a pure AI play.

In reality, RC365 is actually a payments company, which operates online and offline payment gateways in China and Hong Kong. Its tech support services are arguably its closest tie to AI. However, there’s no evidence of how meaningful its AI will be in driving future profits.

Aside from the firm’s announcement that it’ll collaborate with Hatcher Group to develop “AI-powered solutions”, there’s not much else in its arsenal to suggest that RC365 is an AI stock that warrants such hype. What’s more, no numbers were disclosed for the deal either. This leaves plenty of ambiguity as to how meaningful it could be for its top and bottom lines. Therefore, it’s a bit of a headscratcher as to why the RC365 share price has continued to perform.

A risky investment?

It’s also worth noting that RC365 isn’t the most transparent with its accounts either. Aside from disclosing revenue, profits, and basic asset value, there’s not much colour investors can find in its financial reports apart from its annual audits. These are only made available once every year and are usually released three months after the end of its financial year. This makes it incredibly difficult to accurately determine whether the RC365 share price is worth its value.

Moreover, the lack of clarity surrounding the group’s outlook is rather concerning. In its latest audit report, the board said that it “continues to be optimistic about the outlook for FY24 given RC365’s growing pipeline of potential opportunities for further growth”.

Proponents of the stock will point towards RC365’s revenue jumping a staggering 109% to HK$16.9m from $8.1m. But I think investors should be wary that management also reported a net loss of HK$5.4m in FY23, wider than the prior -HK$3.9m.

More worryingly, the latest report showed that its cash and equivalents only stood at HK$9.5m, down from HK$23.4m the year before. If the company continues to burn cash sparingly, it will have to raise capital through equity, which would decimate the value of the stock.

Can the share price keep gaining?

It should go without saying that RC365 shares are risky investments. With an uncertain outlook surrounding profitability, it seems to be trekking the path of many failed SPACs in 2021. These were shell companies that went public with ambiguous outlooks and little to no profits to show for it.

While the share price could continue to rise, any further jumps may be based on speculation rather than fundamentals. After all, the stock is trading on rather elevated valuation multiples with a price-to-sales (P/S) ratio of 78.4, and price-to-book (P/B) ratio of 33.4.

For that reason, unless profits ramp up rapidly in a year’s time, it’s unlikely that the shares will see a similar performance in 2024. That said, with companies beginning to adopt payments tech and AI en masse, RC365 could stand to gain a small portion of this shift in the years to come.

The post Where will the RC365 share price be in 1 year? appeared first on The Twelfth Magpie.

Nevertheless, I didn’t think the bubble would burst so soon.

What goes up…

At the time of writing, the RC365 share price has crashed 50% in the last month, including a 23% fall in the week ending 8 September.

Now, don’t get me wrong. It’s incredibly hard to ignore a stock that had previously delivered life-changing returns since listing in March 2022. And yes, RC365 shares are still up over 170% year-to-date. However, this will be little comfort to those who bought only recently.

If anything, this performance is further evidence that penny stock investing — particularly in loss-making businesses — requires a strong stomach. A good test of this is to consult a company’s free float — the percentage of a company’s shares that are available for trading on the market.

RC365’s free float is just 34%. In practice, this means that the impact of any buying or selling is likely to be higher when compared to your average FTSE 100 or FTSE 250 chugger. In other words, it takes only a small transaction to really move the price up or down.

Now, it would be wrong to assume that RC365 is doomed to keep falling in value. News of more agreements being signed with other firms could see the price rally. The company could have a golden future.

However, these developments take time and investors are a notoriously impatient bunch.

So, I’m still pushing RC365 away with a barge pole.

Better buy

Costain (LSE: COST) is the sort of penny stock I’d be far more likely to buy if I had the cash available. In sharp contrast to its small-cap peer, the Maidenhead-based sustainable infrastructure company has been listed since the mid-1980s.

And while no match for RC365 in terms of gains, the shares are up just under 50% in 2023 so far. That’s a brilliant return considering how gloomy the UK market is in general.

August’s half-year numbers go some way to explaining why. Adjusted pre-tax profit rose 19.5% to £15.9m on the back of increased demand for its consultancy and advisory services and digital technology solutions. In light of a “high-quality” order book, it’s no surprise that management is considering reinstating dividends after a four-year gap.

Despite this, the shares still change hands on a price-to-earnings (P/E) ratio of under six. That seems far too cheap, especially as Costain had net cash of £132m on its balance sheet at the end of June — roughly 80% of its entire market cap!

Staying grounded

It seems fairly apparent to me that Costain isn’t a share that will double my money or more in only a few weeks. As such, it’s likely that it won’t hit the radars of any potential (or existing) RC365 investors.

There are risks too. Analyst projections often need to be revised, sometimes substantially. Costain’s operating margins are also wafer-thin.

Notwithstanding this, the free float here is near 80%. Theoretically, this should make the stock less volatile than RC365 shares if earnings come in slightly lower than expected.

Given the choice, I know which I’d rather own!

The post Forget RC365 shares! I’d rather buy this rocketing penny stock appeared first on The Twelfth Magpie.

Meanwhile, shares of Ramsdens Holdings (LSE: RFX) have displayed much less volatility. In fact, the share price has been on a nice upwards trajectory over the past couple of years. It is up around 35%, easily outperforming the wider market.

Now, these are quite different businesses. RC365 is a fintech company operating almost exclusively in Hong Kong and China. Ramsdens is a pawnbroker and foreign currency exchange specialist that can be found on British high streets.

However, they are similarly sized companies. Ramsdens currently sports a market cap of £71m while RC365’s is £66m. Here, I’m going to consider which small-cap stock I think will be worth more by 2030.

The case for RC365

Despite a 600% rise since going public last year, RC365 shares only really got going in June this year. This was when multiple online reports began linking the obscure penny stock to artificial intelligence (AI). The author(s) tipped it as the next potential Nvidia, a stock that has turned £10k into more than £1.1m in just 10 years.

This linkage rested solely on an agreement RC365 made with a Hong Kong-listed firm called Hatcher Group to work on AI development. Specifically, this deal is to upgrade the RC2.0 wealth management solutions app into an advanced AI-powered RC3.0 version.

Beyond that, though, there doesn’t appear to be much to warrant this comparison with Nvidia. Or to justify the stock’s valuation, which currently trades at around 43 times sales. The company did report a year-on-year doubling of its revenue, but this was a meagre sum of £1.69m.

The company will have to keep on doubling its sales just to sustain its lofty valuation. While not impossible, it’s going to be a tough ask, I feel.

The case for Ramsdens

Ramsdens is a different story altogether. Having been in business since 1987, over 25 years longer than RC365, the Teesside-based company has a solid foundation.

Its recent interim report, covering the six months up to the end of March, was very solid. The diversified pawnbroker’s revenue rose 33% to £39m while pre-tax profit surged by 68% to £3.7m.

It saw growth across all four business segments of foreign currency exchange, pawnbroking loans, precious metals dealing, and the selling of new and second-hand jewellery.

Now, Ramsden’s growth has been aided by the UK’s cost-of-living crisis. This tailwind may die down as inflation slows.

That said, the board is confident growth will continue, as it signed off on a 22% increase in the interim dividend. The stock carries a forward-looking dividend yield of 4.5%.

Meanwhile, unlike RC365, the P/E multiple of nine seems to offer great value.

And the winner is…

For me, it’s not even close. I think Ramsdens will be the larger company by 2030.

Now, I should disclose that I recently became a shareholder of the company. But even if I hadn’t, I think it’s hard to argue anything else here.

One has growing profits, a progressive dividend policy, and is attractively valued. The other is losing money, may never become profitable, and is outrageously valued.

Therefore, I rest my case.

The post Which will be worth more by 2030: Ramsdens or RC365 shares? appeared first on The Twelfth Magpie.

That said, here are three stocks that I personally wouldn’t touch with a 10-foot barge pole.

BT Group

The first stock on my list is BT Group (LSE: BT.A). The telecoms giant appears to be in constant restructure mode, trying to unlock some sort of shareholder value. Yet the share price has declined by 49% in five years and around 66% over 10 years.

Meanwhile, the dividend is now half what it was just five years ago. Slow growth and rising costs are hurting the group’s margins and its net debt stands at an eye-watering £19.9bn.

Worryingly, it is also facing increasing compensation from rival telecom companies and there were staff strikes last year.

Now, BT recently named industry veteran and board member Allison Kirkby as its new chief executive. Maybe she can breath some life into the share price. But, personally, I’m not banking on it.

AMC Entertainment

Next up is US meme stock AMC Entertainment (NYSE: AMC). The share price has lost 98.5% of its value since surging to reach an all-time high in June 2021. Yet I still wouldn’t invest in the theatre operator.

Why? Well, I’d have to change this a title to 1 stock I’d avoid at all costs! to state all my reasons. But let’s focus on profitability first…Oh, there aren’t any profits.

So, let’s consider the firm’s recent announcement that it’s selling up to 40m shares. This shareholder dilution comes less than a month after it announced a 1-for-10 reverse stock split to increase capital. AMC’s total common shares outstanding has increased more than tenfold in the last few years.

These desperate fundraising measures aren’t the sign of a healthy enterprise. Perhaps management can conjure up some growth initiatives with the capital to offset the long-term structural decline of moviegoing.

Again, though, I’m not banking on it. And I don’t think the ongoing Hollywood strikes are helping cinema chains.

RC365

The third stock I consider to be a potential landmine is fintech firm RC365 Holding (LSE: RCGH). Like AMC, this is a stock that surged out of nowhere with very little in the way of underlying fundamentals to back it up. Since reaching 165p in July, the share price has lost 68% of its value.

Now, unlike the previous picks, RC365 is at least operating in a high-growth market. It runs a secure payment gateway service and offers IT solutions in Asia.

While this region is tipped for stellar long-term growth, China, its largest economy by far, is struggling right now. This economic backdrop isn’t conducive to explosive growth, which is what RC365 stock is all about.

Plus, even after its recent collapse, the stock is trading on a price-to-sales (P/S) ratio of 43. For context, a P/S multiple of 10 is generally considered unreasonably expensive.

Finally, the company only went public in 2022, so it doesn’t have much of a public market record for investors to assess. Overall, the stock is highly speculative, and I’d personally avoid it at all costs.

The post 3 stocks I’m avoiding at all costs! appeared first on The Twelfth Magpie.

The chart below highlights how the Asian tech firm has outpaced the FTSE 100.

How to value RC365

Valuing a company like RC365, which isn’t currently profitable, requires alternative metrics since the traditional price-to-earnings (P/E) ratio isn’t applicable.

One common approach is to assess the company’s potential based on its growth prospects, such as its revenue growth rate or user base expansion.

This method evaluates the company’s ability to capture market share and generate future revenue streams, which can be particularly relevant for growth-oriented stocks like RC365.

Another valuable approach is to examine the company’s relative valuation within its industry or sector. This involves comparing RC365’s key metrics, such as revenue multiples or growth rates, to those of its competitors or peers.

By assessing how RC365 stacks up against similar businesses in terms of market positioning and performance, we can gain insights into its relative value within the industry, even in the absence of profitability.

Relative valuations

RC365’s valuation appears notably high, with the Hong Kong-based company currently trading at a staggering 43 times its revenue. This valuation level places it among the most expensive stocks in the market.

To put it into perspective, a price-to-revenue ratio of 10 is typically deemed quite expensive, underscoring the considerable premium attached to RC365’s shares.

The chart below shows its P/S (same as price-to-revenue) ratio versus major companies companies including Meta, Alphabet, and Nvidia.

On a trailing 12-month basis, it’s worth recognising that Nvidia is also considered expensive. However, with the AI boom, profits are soaring and the medium-term forecast is very strong.

Growth prospects

Unfortunately, there’s very little to substantiate the huge share price growth we’ve seen this year. The stock appears to have risen on the back on speculation concerning a MoU about AI.

And this was followed by an article titled ‘Missed Nvidia? This London-based AI stock has the potential to achieve a remarkable surge of over 1,000%‘.

When we look at performance, RC365 is clearly a minnow of the publicly-listed world. The firm’s revenue double to HK$16.9m (£1.5m) in FY23, but remains negligible.

Meanwhile, losses increased significantly over the period, amounting to HK$5.4m (£530k), up from HK$3.9m in the previous year.

So is RC365 justifying the hype? I think not. It seems likely that the share price will continue falling, having peaked in July, perhaps reaching levels seen last year.

Looking at valuation metrics, fair value likely exists somewhere between 10p and 15p a share. That’s still considerably lower than where the stock sits today.

Of course, the company and the stock could perform well in the future. But it’s worth highlighting that CEO Chi Kit Law holds 69.75% of issued shares. If he elects to cash in on the elevated share price, the stock could tank.

The post Do RC365 shares live up to the hype? Here’s what the charts say appeared first on The Twelfth Magpie.