RC365 (LSE: RCGH) shares are a hot investment right now. Last month, they shot up a staggering 88%.
Thinking about buying some shares in the Asia-focused FinTech company? Here are three things to know.
Strong growth
RC365 is an exciting, small-cap company. And right now, it’s growing at a rapid rate. For the year ended 31 March, revenue was up a whopping 109% to HKD $16.9m.
There are not many companies on the London Stock Exchange growing their revenues at that rate.
Looking ahead, there could be plenty of growth to come as the company has recently done some major deals. For example, last month, it acquired 100% of the issued share capital of Mr Meal Production Limited, a media and advertising service in Hong Kong. For the year ended 31 March, Mr Meal Production generated revenue of HKD $2.6m.
It also entered into an agreement with a financial services provider to print its brand on Mastercard credit cards that will be issued to residents in Hong Kong.
“The Board continues to be optimistic about the outlook for FY24 given the Group’s growing pipeline of potential opportunities for further growth”, wrote the company in its recent annual financial report.
Limited AI
Now, while the strong growth here has naturally helped the share price, the stock has also been propelled higher by a recent article that stated it’s a great way to play the artificial intelligence (AI) boom.
The company’s exposure to AI seems quite limited however.
In February, RC365 signed a Memorandum of Understanding (MoU) with Hatcher Group Limited to collaborate on the research and development of what it describes as ‘smart algorithm technology’. This is designed to provide intuitive asset recommendations and other potential FinTech-based solutions.
Meanwhile, it has noted that Mr Meal uses different AI techniques to speed up production efficiency.
However, in that recent financial report, it didn’t mention AI once. That surprised me. I would have thought that if this company was actively using and benefitting from AI, it would have mentioned it.
We’ve seen this movie before
The last point I want to raise is that RC365 shares remind me a lot of Woodbois stock, which shot up last year after a very bullish article was published online.
At the time, the article generated an extraordinary amount of interest in Woodbois, sending its share price up above 9p. However, it didn’t end well for a lot of those that piled into the stock at the time. Today, Woodbois shares trade for less than 1p.
It’s worth pointing out that after the recent share price spike, RC365 has a very high valuation. There are no profits (loss for the year was HKD $5.4m) so there’s no price-to-earnings (P/E) ratio. However, the trailing price-to-sales ratio is about 90.
I typically regard a price-to-sales ratio of 10 as very high. So the ratio here is a little concerning.
My view on RC365
In summary, I see RC365 as an innovative company that’s doing some interesting deals and growing at a fast pace. But I worry that recent coverage has pushed the share price up to unsustainable levels.
Given the high valuation, I think there are much better (and safer) growth stocks for investors to buy today.
