The market has been very upbeat regarding blockchain applications, and the enthusiasm for digital currencies is gradually extending to non-fungible tokens (NFTs). NFTs are a new type of digital asset that represent ownership of certain physical items that are stored as a unit data over blockchain, the digital ledger technology that powers cryptocurrencies.

The shares of collectibles and artwork e-commerce platform Oriental Culture Holdings Ltd. (OCG) have been soaring, with speculators betting on the company’s potential move into the NFT space to enhance its art trading platform. The company’s  e-commerce platform allows collectors, artists, art dealers and owners to access a global art trading market to buy and sell paintings, calligraphies, collectibles and other physical items.

After hitting a $2.82 low earlier this month, OCG’s stock soared to more than $14 earlier this week. In fact, the stock has rallied by as much as 190% so far this year. Its ascent took a breather this week, however. With some investors taking profits, the stock lost 33.8% in the two sessions following its high. But OCG gained 6.4% intraday in yesterday’s trading session to close at $10.00.

Let’s take a closer look whether OCG can continue its  incredible rally going forward.

The NFT-craze

The excitement around NFTs exploded during the COVID-19 pandemic as people spent more money on artwork and other items that exist only online, with some items selling for tens of millions of dollars. But NFTs really hit the mainstream big-time earlier this month after digital artist Beeple sold a digital painting titled “Everydays: The First 5000 Days” for a whopping $70 million in a Christie’s auction. The sale brought a wave of new attention to the world of NFTs.

Some of the more notable NFT sales include Twitter (TWTR) CEO Jack Dorsey’s first-ever tweet (authored in 2006), which was auctioned for about $2.9 million, Toronto-based artist Krista Kim sale of  an NFT-backed digital home for more than half a million dollars,  Time Magazine’s sale of NFT magazine covers, and the NBA launch of its own NFTs through digital trading card sales on the platform NBA Top Shot.

Solid Stock Market Debut

OCG was founded in 2018 but was listed as recently as December 15, 2020. The company first applied for a $10 million listing in November 2019, but more than doubled its offering last year,  raising $20.26 million in gross proceeds at $4 per share.  OCG plans to invest $4 million in information technology infrastructure and proprietary software, while $3 million will be used to develop new businesses. OCG debuted at $6.25 and hit  $8.37 on its first trading day. The stock closed the trading session at $6.00, after surging as much as 109.3%.

Stretched Valuations

In terms of trailing-12-month p/e, OCG is currently trading at 62.59x, which is 168.5% higher than the industry average  23.31x. OCG is also trading well above the industry average in terms of trailing-12-month p/s  (24.76x versus 1.38x).

In terms of forward price/cash flow, OCG’s 85.24x is significantly higher than the industry average  12.80x.

POWR Ratings Reflect Ambiguous Prospects 

OCG has an overall rating of C, which translates to Neural in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among  these categories, OCG has a B Momentum Grade, in line with its recent price rally. The stock has a B grade for Sentiment also, reflecting favorable analyst expectations.

However, OCG has a Value Grade of C, which is consistent with its higher-than-industry valuation. OCG also has a D grade for Stability, indicating that the stock is more volatile than its industry peers. Of 81 stocks in the C-rated Technology – Services industry, OCG is ranked #54.

Beyond what we’ve stated above, we have also given OCG grades for Growth and Quality. Get all the OCG ratings here.

Better than OCG: Click here to access 6 top-rated stocks in the same industry.

Bottom Line

Investors have been  eagerly betting on the ability of online art purveyors to pivot to NFTs and other blockchain applications. A solid combination of retail and momentum traders have been driving the prices of companies linked to NFT or that could tap into the NFT space. Artists across worldwide  appear  to be leaning into these digital collectibles. But  many analysts see NFT as just another manifestation of bubbling market mania.

OCG had more than  90,000 users on its platform last year. However, it is still a relatively new player in the online fine art marketplace. In addition,  there is little  clarity on whether OCG is truly entering the NFT space and market participants are failing to acknowledge that the major catalyst behind OCG’s incredible run is the hope that it could potentially move its art sales to the red-hot blockchain technology. Hence, even though  NFT excitement may not  fade anytime soon, we think it wise for investors to avoid betting on OCG until the company unveils concrete plans.

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OCG shares were trading at $9.59 per share on Friday morning, down $0.41 (-4.10%). Year-to-date, OCG has gained 95.71%, versus a 5.19% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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