Over the past few weeks, RC365 Holdings (LSE:RCGH) has shot onto the radar for a lot of investors. The stock might have a market cap of £188m now, but three months ago this was sitting around £20m. The meteoric 833% rise over the past year has mostly come in the past few months. Yet before I get carried away and invest without thinking, here are some key things to note about RC365 shares.
New deals providing a catalyst
RC365 is the holding company of Regal Crown Technology, which provides payment gateway solutions and IT support services.
Recently, new deals have been announced with third parties that have been a large positive for the company. For example, the stock shot higher in June following an announcement that a memorandum of understanding had been drawn up with Hatcher Group. This relates to the provision of artificial intelligence (AI) solutions.
The acquisition of another smaller company and a partnership in Hong Kong are other deals that have helped to push the share price higher.
Some speculation driving the price
There are some fundamental reasons that have contributed to the increase in the share price. Yet from my perspective, none of them are large enough to warrant such a large move.
I’ve seen it many times before where a small-cap stock jumps as a result of some good news. This is then exacerbated by speculators that pump the stock even higher by buying more. Given that the market cap is very low, even a relatively small purchase amount can by enough to move the share price.
I feel this is very much the case with RC365. It’s also a spiral, as the more the share price lifts, the more people jump on the bandwagon and buy more.
Limited financials to ponder over
The company only went public in early 2022, meaning that I don’t have access to much publicly released information.
The 2022 annual report did highlight that revenue increased by 9.6% versus 2021. The business posted a profit in 2021, but fell to a loss last year due to the costs of the listing on the stock market.
Yet for an experienced investor, I’d want to see a much more thorough picture of the business over several years to get a better understanding of the trend of revenue and profits.
Big concentration of power
One point that did strike me is that the CEO, Chi Kit Law, owns 69.75% of issued share capital. This gives him large sway in decision-making and financial power in the business. I’m not sure this is entirely healthy and could negatively impact the business going forward.
Investors also need to watch out for any selling of these shares in the future should Law want to realise some cash profits.
Overall, I’m sceptical about any sustainable move higher in the stock given the above points.
