The RC365 (LSE:RCGH) share price is up a whopping 185% this year. As such, it’s been one of the stock market’s biggest winners in 2023, as artificial intelligence (AI) stocks gain prominence among investors. So, here’s where I think the stock could be in a year’s time.
RC365 may be an AI stock to many investors, which has led to a surge in its share price. But upon closer inspection, the stock’s performance seems to have been the result of people buying into what they think is a pure AI play.
In reality, RC365 is actually a payments company, which operates online and offline payment gateways in China and Hong Kong. Its tech support services are arguably its closest tie to AI. However, there’s no evidence of how meaningful its AI will be in driving future profits.
Aside from the firm’s announcement that it’ll collaborate with Hatcher Group to develop “AI-powered solutions”, there’s not much else in its arsenal to suggest that RC365 is an AI stock that warrants such hype. What’s more, no numbers were disclosed for the deal either. This leaves plenty of ambiguity as to how meaningful it could be for its top and bottom lines. Therefore, it’s a bit of a headscratcher as to why the RC365 share price has continued to perform.
A risky investment?
It’s also worth noting that RC365 isn’t the most transparent with its accounts either. Aside from disclosing revenue, profits, and basic asset value, there’s not much colour investors can find in its financial reports apart from its annual audits. These are only made available once every year and are usually released three months after the end of its financial year. This makes it incredibly difficult to accurately determine whether the RC365 share price is worth its value.
Moreover, the lack of clarity surrounding the group’s outlook is rather concerning. In its latest audit report, the board said that it “continues to be optimistic about the outlook for FY24 given RC365’s growing pipeline of potential opportunities for further growth”.
Proponents of the stock will point towards RC365’s revenue jumping a staggering 109% to HK$16.9m from $8.1m. But I think investors should be wary that management also reported a net loss of HK$5.4m in FY23, wider than the prior -HK$3.9m.
More worryingly, the latest report showed that its cash and equivalents only stood at HK$9.5m, down from HK$23.4m the year before. If the company continues to burn cash sparingly, it will have to raise capital through equity, which would decimate the value of the stock.
Can the share price keep gaining?
It should go without saying that RC365 shares are risky investments. With an uncertain outlook surrounding profitability, it seems to be trekking the path of many failed SPACs in 2021. These were shell companies that went public with ambiguous outlooks and little to no profits to show for it.
While the share price could continue to rise, any further jumps may be based on speculation rather than fundamentals. After all, the stock is trading on rather elevated valuation multiples with a price-to-sales (P/S) ratio of 78.4, and price-to-book (P/B) ratio of 33.4.
For that reason, unless profits ramp up rapidly in a year’s time, it’s unlikely that the shares will see a similar performance in 2024. That said, with companies beginning to adopt payments tech and AI en masse, RC365 could stand to gain a small portion of this shift in the years to come.