Warren Buffett has amassed a fortune worth over $100bn. He’s probably the most successful investor of all time, and he’s a crack stock picker.
So, what about RC365 (LSE:RCGH)? It’s a UK-listed company that’s seen 720% growth over the past 12 months, and 500% over three months.
But is it the type of stock that meets Buffett investment criteria? Let’s take a look.
Undervalued
Buffett is known for his value investing approach, which involves seeking out companies that he believes are fundamentally strong but currently undervalued by investors.
He looks for stocks that are trading at a discount versus their intrinsic or book value. If they are, this presents an opportunity to purchase stocks at a lower price and potentially benefit from future price appreciation as their values become recognised by the market.
So, is RC365 undervalued? Well, it current trades with a price-to-sales ratio around 100 times. That makes it incredibly expensive. In fact, a P/S ratio around 10 is normally considered expensive. As the company isn’t profit-making, we can’t assess it’s price-to-earnings ratio.
Value investors like Buffett also run discounted cash flow calculations on any stocks they’re researching. But with the limited financial data available to us, it’s very hard to forecast cash flows going forward.
Investors in RC365 may argue that the company’s value relates to some recent deals, including a partnership with APEC Business Services and a MoU with Hong-Kong listed Hatcher Group for ‘AI development’. However, there is little evidence that these contracts justify its soaring share price.
Quality
The Oracle of Omaha is known for investing in quality stocks. He looks to invest in stocks that have strong fundamentals, a competitive advantage versus their peers, stable and sustainable earnings growth, and a solid management team.
Does RC365 fit this criteria? Well, it’s certainly no blue-chip stock. In fact, it’s loss-making. And it doesn’t appear to have a competitive advantage in any of the industries in which it operates. With a market cap of £150m, it’s among the smallest of the payment gateway companies, so it’s unlikely to have a competitive advantage.
With respect to business growth, this week we saw annual revenue increase by 109% to HKD16.9m (£1.6m). While, the 2022 annual report did highlight that revenue increased by 9.6% versus 2021. Despite this revenue growth, losses have expanded.
What about the management team? Well, we know that CEO Chi Kit Law has two decades of experience in positions of leadership in the payment solutions and banking. Law previously worked as Head of Banking Systems at MoneySwap Plc and Assistant Vice-President of Group Technology and Operations at DBS Bank.
In all honesty, Buffett probably looks for a bit more pedigree, but he normally invests in multi-billion-dollar companies. It’s also worth noting that Law holds a substantial 69.75% of the issued share capital. That’s a turnoff for me.
So, is RC365 likely to be a Buffett favourite? I doubt it!
