Headquartered in Beijing, China, Borqs Technologies, Inc. (BRQS) delivers software, development services, and products that offer Android-based smart connected devices and cloud service solutions in China, India, the United States, and internationally.

BRQS’ shares have declined 21.3% over the past three months and 35.5% over the past year. Indeed, the stock closed yesterday’s trading session at $1.00, 70.1% below its 52-week high of $3.35.

Although the company’s investment in its 5G Industrial Park Project positions it to capitalize on the increasing adoption of 5G technologies, it has been selling its shares to support its growth activities. Furthermore, BRQS’ negative profit margin could make it harder for the stock to rebound.

Click here to checkout our 5G Industry Report for 2021

Here is what we think could influence BRQS’ performance in the near term:

Selling Shares to Fund Projects

Last month, BRQS completed an offering of $15.3 million worth convertible notes to institutional and individual investors. The company sold $7.7 million worth notes to the same investors in February and April. BRQS expects to use the proceeds of these offerings to to procure orders that it expects to receive from its existing and new customers this year and for investment in 5G solutions. The company also plans to use the proceeds to fund its Huzhou 5G Project, which is expected to be completed in  the second quarter of 2021.

But given the company’s weak cash balance, if it fails to raise  subsequent financing, its business could  be negatively impacted.

Poor Profitability

BRQS’  6% trailing-12-month gross profit margin is 87.7% lower than the 48.5% industry average. Also,  its trailing-12-month net income margin, ROA and EBITDA margin are negative 132.7%, 121% and 146.2%, respectively.  BRQS’ trailing-12-month cash from operations came in at negative 8.06 million.

Weak Financials

BRQS’ total assets and revenue decreased at CAGRs of 43.5% and 39.7%, respectively, over the past three years. Its  EPS declined 7.9% year-over-year. The company’s trailing-12-month operating loss amounts to $40.62 million, while its trailing-12-month EBITDA stands at negative $26.31 million. BRQS incurred a $35.50 million trailing-12-month net loss. The company’s trailing-12-month total debt is $17.30 million, while its trailing-12-month net debt is $13.58 million.

Unfavorable POWR Ratings

BRQS has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. BRQS has a C grade for Growth and Quality. The stock’s weak growth prospects and low profitability are reflected in these grades.

It also has a C grade for Momentum, which is consistent with the stock’s negative price returns over the past three months.

In addition to the grades we’ve highlighted, one can check out additional BRQS ratings for Sentiment, Stability and Value here.

BRQS is ranked #66 of 75 stocks in the D-rated China industry.

There are several top-rated stocks in the same industry. Click here to view them.

Bottom Line

Even though BRQS’ next-generation 5G product development initiatives have raised investors’ hopes, the company has been raising funds via institutional debt to fund its projects. Given its inadequate financials, an increasing convertible debt load could  further negatively affect its profitability. This makes it a highly speculative investment. So, we believe it’s wise to avoid the stock now.

Click here to checkout our 5G Industry Report for 2021

BRQS shares fell $1.00 (-100.00%) in premarket trading Wednesday. Year-to-date, BRQS has gained 0.31%, versus a 13.51% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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