New York City-based entertainment and education company Color Star Technology Co., Ltd. (CSCW) focuses on the application of technology and artificial intelligence (AI) in the entertainment industry and is currently making significant investments in the development of its metaverse project. In January, CSCW announced the launch of the global open beta version of its entertainment metaverse platform “Color World” and the “Color World” software token, namely “Color Tickets,” allowing users around the world to use the Color Tickets in the Color World APP. Color World features include in-game social features, long-distance conferencing, celebrity interactions, and a marketplace. The company has been entering several partnerships since the launch of the metaverse platform to enhance the virtual world experience.

CSCW also recently announced its subsidiary Color Sky Entertainment Limited’s strategic partnership with Shenzhen Qian Hai Blue Earl Business Aviation Service Co. to set up a virtual airport in Color Star’s Color World, which will become a hub for digital aviation services and other related businesses.

However, despite its progress in building its metaverse project, the stock has been on a downtrend. CSCW’s shares have slumped 86.3% in price over the past year and 66% year-to-date. The stock has declined 29.2% over the past month and hit its 52-week low of $0.16 yesterday, closing the session at $0.17.

Here is what could shape CSCW’s performance in the near term:

Poor Profitability

CSCW’s 38.98% gross profit margin is 21.9% lower than the 49.91 industry average. Also, its  negative 86.06% and 121.44% respective EBITDA and net income margins are substantially lower than the 13.78% and 5.69% industry averages.

And CSCW’s negative 23.08%, 10.16%, and 14.29%  respective ROE, ROA, and ROTC compare with the 7.39%, 3.50%, and 4.78% industry averages.

Bleak Bottom Line

CSCW’s trailing-12-month revenues and gross profit stood at $6.78 million and $2.64 million, respectively. However, its trailing-12-month net income came in at a negative $8.24 million, while its EPS was negative $0.12. Also, its EBITDA and operating income amounted to negative $5.84 million and $9.56 million, respectively. In addition, its trailing-12-month cash from operations was negative $2.80 million.

Unfavorable POWR Ratings

CSCW has an overall F rating, which translates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a D grade for Stability, which is consistent with its 2.73 beta.

CSCW has an F grade for Quality, in sync with its negative profit margins.

Among the 26 stocks in the Outsourcing – Education Services industry, CSCW is ranked the last.

Beyond what I have stated above, one can also view CSCW’s grades for Sentiment, Growth, Momentum, and Value here.

View the top-rated stocks in the Outsourcing – Education Services industry here.

Bottom Line

While companies around the globe are investing in the metaverse, consumers remain skeptical. According to Forrester’s survey, about one third of online adults (34% U.S. and 28% UK) are excited about the metaverse, and less than 30% (29% U.S. and 25% UK) think the metaverse will be good for society. Consumers have yet to be familiarized with the meta concept, and thus it might take some time for CSCW to gain substantially from its metaverse project. Furthermore, the company is likely to face heightened competition from the big tech companies. Also, considering its depleted margins, I think it could be best to avoid the stock now.

How Does Color Star Technology Co., Ltd. (CSCW) Stack Up Against its Peers?

While CSCW has an overall POWR Rating of F, one might want to consider investing in the following Outsourcing – Education Services stocks with an A (Strong Buy) rating: Lincoln Educational Services Corporation (LINC) and Universal Technical Institute Inc (UTI).

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CSCW shares were unchanged in premarket trading Tuesday. Year-to-date, CSCW has declined -66.17%, versus a -7.09% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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