I missed the surge in Nvidia shares. It’s unfortunate, but most people didn’t see it coming. So what about this UK-listed AI stock that surged 238% this year?
Let’s take a closer look at RC365 (LSE:RCGH).
What is this firm?
RC365 Holding (LSE: RCGH) is a UK-based company. It acts as a parent company for a business offering financial technology solutions and IT services in Hong Kong and the People’s Republic of China (PRC). It’s been around since 2013.
RC365 focuses on two main areas. Firstly, it provides payment gateway solutions. These include online payments, mobile payments, and e-wallet solutions. Secondly, it offers IT support and security services. This involves assisting with various IT needs, such as cloud computing, data centre services, and cybersecurity solutions.
It’s hard to say exactly why this stock surged. The company’s full-year earnings weren’t hugely impressive. In fact, while revenue surged 109% last year, the company’s losses expanded by 38%. And we’re still talking about tiny figures. Revenue amounted to £1.5m.
The real reason might just have been speculation. RC365 announced several deals in the late spring and early summer, one of which mentioned AI — a deal with Hong-Kong based Hatcher Group. The IT company also announced its collaboration with APEC Business Services and the acquisition of Mr Meal Production Limited.
These events were followed by an article, possibly sponsored, posted around the internet by various authors. The article was titled Missed Nvidia? This London AI stock could jump over 1,000%. There’s no suggestion the company itself was linked to this.
In other words, there appears to be very little behind the surge in the RC365 stock. This is seemingly reflected in the fact that more than half of its peak value has been given back.
Moreover, CEO Chi Kit Law holds 69.75% of issued shares. With a market-cap of just £85m, even relatively small trades can have a pronounced impact on the share price.
A new Nvidia?
As I’ve alluded to, I don’t think there’s much behind the rise. And therefore I don’t expect this firm to be able to sustain its 238% yearly gain, or push higher. Therefore, it’s not similar to Nvidia which, despite the surge in the share price, managed to beat analysts’ forecasts.
It’s also worth highlighting that RC365 is phenomenally expensive. The stock trades at 60 times revenue, which puts it among the most expensive stocks I’ve come across. By comparison, Nvidia trades around 37 times revenue, and 22 times forward sales.
Nvidia is expensive too, but it’s at the heart of the AI revolution and clearly investors think this boom has a lot further to run. As a rule of thumb, a price-to-sales ratio of about 10 is normally considered expensive.
RC365’s core business isn’t operating in a particularly positive environment. China is experiencing some severe economic headwinds and near-term growth could suffer.
This isn’t to say there won’t be another Nvidia, it’s just not RC365, I feel.