Borqs Technologies, Inc. (BRQS) is a China-based company focused on software and development services. The company operates through two segments: Mobile Virtual Network Operator (MVNO) and Connected Solutions. Onion Global Limited (OG) offers a platform that incubates, markets, and distributes a wide range of fashionable and future brands in China and in the global market. It is headquartered in Guangzhou province in China.
With continuing digital transformation and accelerated adoption of cloud computing, software companies are investing heavily to deliver advanced solutions and strengthen their market position. China, which hosts the world’s largest internet market, is expected to lead the global digital transformation. The Chinese operating systems and productivity software publishing market is projected to grow at a 29.7% CAGR over the next six years to $4.70 billion. Thus, Chinese software stocks BRQS and OG should benefit in the coming years.
BRQS’ share price has slumped 3% over the past month, while shares of OG have lost 38.8% over the period. Also, BRQS has lost 11.4% over the last five days compared with OG’s 8.5% decline. But in terms of intraday performance, BRQS is the clear winner with 9.3% gains versus OG’s 1.8%.
So, which stock is a better buy now? Let’s find out.
On July 7, BRQS announced the completion of its new manufacturing facilities in Huzhou, China, which should enable the company to expand its production capacity significantly.
In June, BRQS commenced its delivery of cellular CTA-2045 EcoPort products to SkyCentrics for use by utility companies for smart city deployment. This demonstrates the company’s strong market presence and should allow BRQS to garner prominent returns.
On June 25, OG partnered with Sunwah Chuanyu to establish a joint venture, Xinyang Wujie, with the objective of exploring new consumer opportunities in Southwest China and promoting cross-border e-commerce in the region.
Recent Financial Results
OG’s revenues declined 5.7% year-over-year to RMB668.90 million ($102.10 million) in its fiscal first quarter. Its gross profit deteriorated 33.1% from its year-ago value to RMB125.70 million ($19.20 million), while its net income declined 83.9% year-over-year to RMB8.90 million ($1.40 million).
BRQS’ revenue declined 73% year-over-year to $26.75 million in its fiscal period ended December 2020. Its gross profit stood at $1.60 million, up 180.5% from the last year. Its net loss declined 2.7% from its year-ago value to $34.79 million.
OG’s trailing-12-month revenue is 21.51 times BRQS’.
OG is also more profitable, with a gross 19% profit margin versus BRQS’ 5.97%.
Furthermore, OG’s 5.12% and 4.33% respective EBIT and net income margins compare with BRQS’ negative 147.73% and 132.71%.
Thus, OG is more profitable.
In terms of trailing-12-month EV/Sales, BRQS is currently trading at 4.73x, which is 90.9% higher than OG, which is currently trading at 0.43x. Also, BRQS’ 1.58 trailing-12-month Price/Sales ratio is 70.3% higher than OG’s 0.47.
Thus, OG is the affordable stock here.
BRQS has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. OG, in comparison, has an overall B rating, which translates to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
OG has a B grade for Value owing to its lower-than-industry valuation. OG’s 0.43x trailing-12-month EV/Sales is 75% lower than the 1.73x industry average.
In comparison, BRQS has a grade C for Value. This is justified because BRQS’ 4.73x trailing-12-month EV/Sales is 3.7% higher than the 4.56x industry average.
OG has a C grade for Stability, which is consistent with its relatively high 1.09 beta. BRQS has a grade of D for Stability. This is justified, given its negative 0.77 beta.
Of the 70 stocks in the China industry, OG is ranked #12 while BRQS is ranked #65.
Given the data security crackdown on Chinese stocks listed on U.S. exchanges, investors should wait until the current situation stabilizes before investing in Chinese tech ADRs. However, based on the factors discussed here, OG appears to be a better bet. Current regulatory headwinds and low profitability make BRQS stock best avoided now.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the China industry here.
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OG shares were trading at $3.41 per share on Tuesday afternoon, down $0.18 (-5.01%). Year-to-date, OG has declined -51.29%, versus a 17.46% 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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