Takung Art Co. Ltd. (TKAT) in Hong Kong operates an online electronic marketplace for selling and trading artwork. The company’s platform gives artists, dealers, and owners access to a huge art trading market where they may connect with a diverse spectrum of investors.

The company’s shares have declined 92.9% in price over the past year and 44.1% over the past three months to close yesterday’s trading session at $2.41.

Last year, TKAT announced its intention to enter the market for non-fungible tokens (NFTs), which are digital items such as art, video, and music that are stored on blockchain, the digital ledger that underpins many cryptocurrencies. However, various risks are associated  with the NFT market, not to mention its extreme volatility. This could impact TKAT’s price performance in the coming months.

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

Poor Profitability

TKAT’s 0.04% trailing-12-months CAPEX/Sales multiple is 99.1% lower than the 3.95% industry average. Its trailing-12-months cash from operations of $42.31 million is 85.9% lower than the  $299.40 million industry average. Also, its trailing-12-months ROA, net income margin, and ROC are negative 11.5%, 171.4%, and 30.3%, respectively.

Stretched Valuation

In terms of forward EV/Sales, TKAT’s 5.92x is 134.9% higher than 5.92x the industry average. And TKAT’s 5.16x forward Price/Sales is 212% higher than the 1.65x industry average.

POWR Ratings Reflect Uncertainty

TKAT has an overall D rating, which equates to 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.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TKAT has an F grade for Stability and a D for Value. The stock’s 3.25  beta is in sync with the Stability grade. In addition, the company’s higher-than-industry valuations are consistent with the Value grade.

Among  the 71 stocks in the F-rated Internet industry, TKAT is ranked #56.

Beyond what I have stated above, one  can view TKAT ratings for Quality, Momentum, Growth, and Sentiment here.

Bottom Line

While the company’s announcement that it plans to  enter the NFT space caused its stock to soar in price, investors could get concerned about TKAT’s long-term prospects based on its poor profitability. Furthermore, because the long-term potential of digital collectibles is still unknown, investors’ risks may be bamboozled by confusing marketing, the whims of affluent collectors, and the likelihood of fraudulent players. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $2.47 and $6.19, respectively, indicating a downtrend. Therefore, we believe the stock is best avoided now.

How Does Takung Art Co. Ltd. (TKAT) Stack Up Against its Peers?

While TKAT has an overall D rating, one might want to consider its industry peers, trivago N.V. (TRVG), which has an overall A (Strong Buy) rating, and Yelp Inc. (YELP) and Travelzoo (TZOO), which have an overall B (Buy) rating.

Note that TRVG is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

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TKAT shares rose $0.05 (+2.07%) in premarket trading Thursday. Year-to-date, TKAT has declined -39.26%, versus a -3.17% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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