Shanghai, China-based CooTek (Cayman) Inc. (CTK - Get Rating) is an artificial intelligence (AI) and big data technology-based mobile internet company that operates in the United States, China, and internationally. The company intends to utilize its expertise in mobile games and online literature to build a metaverse. Lejlu, a Shanghai-based game studio in which CTK has invested, is developing a metaverse game that targets a female audience.

Software solutions remain in high demand as companies invest in digitization to keep their processes efficient. The need for advanced-technology integrated software solutions is increasing. According to Statista, revenue in the software market is expected to reach $824.85 billion by 2026, growing at a 7.4% CAGR. Alas, CTK has not been able to capitalize on the software industry’s solid growth amid the COVID-19 pandemic, as evidenced by the decline in its revenue and earnings.

The stock has declined 46.6% in price over the past three months and 82.1% over the past nine months to close the last trading session at $0.29. It is currently trading 90% below its 52-week high of $2.89, which it hit on April 1, 2021. CTK’s weak financials and profitability make the stock’s near-term prospects look uncertain.

Click here to check out our Software Industry Report for 2022

Here is what could influence CTK’s performance in the upcoming months:

Underwhelming Valuation

In terms of forward non-GAAP P/E, CTK’s 5.76x is 70.4% lower than the 19.46x industry average. Likewise, its 0.07x forward EV/S is 97.8% lower than the 3.34x industry average. And the stock’s 0.07x forward P/S is 98% lower than the 3.29x industry average.

Disappointing Recent Financials

For the fourth quarter, ended Dec.31, 2021, CTK’s net revenues declined 48% year-over-year to $53 million. The company’s gross profit declined 51% year-over-year to $47 million. And its net loss came in at $0.27 million, compared to a $18.78 million net loss in the year-ago period.

Favorable Analyst Estimates

Analysts expect CTK’s revenues to grow 7.2% in its fiscal year 2022 and 26.1% in fiscal 2023. Its EPS for fiscal 2023 is expected to grow 400% year-over-year.

Low Profitability

In terms of trailing-12-month Capex/Sales, CTK’s 0.66% is 70.6% lower than the 2.25% industry average. Likewise, its trailing-12-month net income margin came in negative compared to the positive industry average of 5.69%. And the stock’s trailing-12-month ROC and ROA are negative compared to the positive industry averages of 4.78% and 3.50%, respectively.

POWR Ratings Reflect Uncertainty

CTK has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, each factor weighted to an optimal degree.

CTK has a C grade for Momentum. The stock is currently trading below its 50-day and 200-day moving averages of $0.30 and $1.01, respectively, justifying the Momentum grade.

CTK has a C grade for Quality, which is in sync with its lower-than-industry profitability ratios.

Among the 63 stocks in the F-rated China industry, CTK is ranked #15.

Beyond what I have stated above, view CTK’s ratings for Growth, Value, Stability, and Sentiment here.

Bottom Line

CTK is currently trading below its 50-day and 200-day moving averages, indicating a downtrend. However, despite its weak financials and lower-than-industry profitability, analysts expect its financials to improve this year and beyond. So, it could be wise to wait for a better entry point in the stock.

How Does CooTek (Cayman) Inc. (CTK) Stack Up Against its Peers?

CTK has an overall POWR Rating of C, which equates to a Neutral rating. Therefore, one might want to consider investing in other China stocks with an A (Strong Buy) or B (Buy) rating, such as Fuwei Films (Holdings) Co., Ltd. (FFHL - Get Rating), FinVolution Group (FINV - Get Rating), and NetEase, Inc. (NTES - Get Rating).

Click here to check out our Software Industry Report for 2022

CTK shares were trading at $0.27 per share on Thursday morning, down $0.02 (-6.94%). Year-to-date, CTK has declined -56.05%, versus a -5.54% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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