Shanghai, China-based CooTek (Cayman) Inc. (CTK) 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), FinVolution Group (FINV), and NetEase, Inc. (NTES).

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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