The RC365 (LSE: RCGH) share price has been all over the place in recent days. On 28 July, it dropped over 20%. As I write on 31 July, it’s up 16% to 116p.
Over a six-month period, the stock has risen an incredible 450%.
What’s going on here?
Sponsored hype?
RC365 Holding is a fintech solutions service provider based in Asia. That’s a large market to be operating in, so the company has growth potential.
However, a lot of the recent share price gains seems to have stemmed from sponsored online articles trumpeting the potential for the shares to make investors a boatload of money.
Specifically the author(s) talk up the firm’s artificial intelligence (AI) credentials.
One paid-for article (though there’s nothing to suggest these are authored by anyone connected to RC365) is entitled Missing The A.I Run? This London Stock Could Jump 500%. It says the company is a “…unicorn that is taking the markets by storm…It has gained more than 500% and still has room to go from over 100p to over 1000p.”
Actually, a unicorn company is a privately-owned business or start-up with a value of over $1bn. RC365 currently has a market cap of £146m ($187m), so it’s not one.
Additionally, the articles claimed that investing in the shares today could be like buying into Apple, Nvidia or Microsoft decades ago. These are some of the best-performing stocks of all time.
However, it fails to mention that all these companies are at the forefront of AI today. They spend billions annually on research and development of the technology. Meanwhile, RC365 had cash and cash equivalents of HK$9.5m (around £1m) on 31 March.
Its foray into AI seems to consist of a non-binding agreement with a Hong Kong-listed company called Hatcher Group to develop an app.
Will this deal and £1m in cash be enough to make a huge splash in the world of AI? Possibly, but I have my doubts.
Annual results
The share price dropped last week after the company reported its full-year results (up to 31 March).
Annual revenue increased by 109% to HK$16.9m (£1.6m). However, the loss for the year was up by 38% to HK$5.4m (about £500k).
This puts the stock on a price-to-sales (P/S) ratio of just under 100. That is one of the most expensive valuations on the London Stock Exchange.
Is history rhyming?
Mark Twain is credited with saying: “History never repeats itself, but it does often rhyme“.
Looking at the wild oscillations of the RC365 share price, I’m reminded of another stock from recent times. That’s Woodbois, an Africa-focused forestry company.
This was another small-cap stock that got a lot of attention last year after a paid-for article did the rounds online. In the case of Woodbois, it was the seemingly hyped-up commercial opportunity of carbon credits that got market speculators fired up.
The stock initially surged in response to this article. Unfortunately, it has since fallen 83% in one year as the company has repeatedly tapped investors for more cash to survive.
Now, history might not necessarily repeating itself here. But we have a stock surging on the back of a sponsored article linking it to an in-vogue investment theme. So, to my mind, history is at least rhyming.
Therefore, I’ll be investing elsewhere.
