In an age of artificial intelligence (AI), UK translation company RWS Holdings (LSE:RWS) looks like the equivalent of dial-up internet. As a result, the stock has fallen 76% in the last five years.
This, however, could be a huge mistake – revenues are growing and the company has an AI product that generates real value for customers. On top of this, the stock comes with a 9% dividend yield.
AI
At first sight, the rise of AI should spell big trouble for RWS – automated solutions should be able to translate documents more quickly and more cheaply. And that’s why the stock has been going down.
However, a big part of the company’s revenues come from specialist translations in areas like law, healthcare, or finance. These are often highly technical and the cost of an error can be huge.
That makes outsourcing translation to AI to try and save some cash a big risk. By contrast, RWS has translators with specific expertise in these areas to try and avoid these costly errors.
Risks
Make no mistake about it – this is a risky stock. As the recent performance of Nvidia has shown, anything to do with AI is hard to forecast for even the best analysts.
On top of that, RWS has seen revenues fall over the last couple of years. The company doesn’t see this as a feature of permanent disruption, though – it’s attributing it to a cyclical downturn in end markets.
Profits have also fallen due to impairment charges relating to its acquisition of SDL (an AI-enabled translation business). These are declining but there’s an ongoing risk with other recent acquisitions.
There’s no doubt the stock comes with risks and these can’t be ignored. But there are also some very attractive potential rewards for investors to consider – most notably, a 9% dividend.
Rewards
When a stock comes crashing down – and ‘crashing’ is the word for RWS – it’s always worth a closer look to see whether the dividend is in danger. But there are some strong reasons for thinking it isn’t.
The first is sales aren’t declining any more – the firm reported a return to growth in 2024 and is expecting this to continue. That supports the idea its recent challenges are temporary, at least in part.
Another is that – despite its difficulties – RWS has consistently increased its dividend over the last few years. So with things picking up in the underlying business, this looks likely to continue.
The third is that it has been incorporating AI into its recent products. And its customers are seeing genuine results from this, with up to 65% improvements in efficiency across supply chains.
Should I buy the stock?
It’s easy to get swept along by a narrative of a business whose core product is being replaced by AI solutions that do the same thing faster and cheaper. But the reality is much more complicated.
If the market is prematurely writing RWS off, there could be a huge opportunity for investors here. I’m still trying to work out whether a 9% dividend is enough to entice me to take the risk.
