RC365 (LSE: RCGH) shares have crashed down to earth over the last few weeks. However, they’re still up over 100% since the turn of the year.
Meanwhile, shares of Ramsdens Holdings (LSE: RFX) have displayed much less volatility. In fact, the share price has been on a nice upwards trajectory over the past couple of years. It is up around 35%, easily outperforming the wider market.
Now, these are quite different businesses. RC365 is a fintech company operating almost exclusively in Hong Kong and China. Ramsdens is a pawnbroker and foreign currency exchange specialist that can be found on British high streets.
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However, they are similarly sized companies. Ramsdens currently sports a market cap of £71m while RC365’s is £66m. Here, I’m going to consider which small-cap stock I think will be worth more by 2030.
The case for RC365
Despite a 600% rise since going public last year, RC365 shares only really got going in June this year. This was when multiple online reports began linking the obscure penny stock to artificial intelligence (AI). The author(s) tipped it as the next potential Nvidia, a stock that has turned £10k into more than £1.1m in just 10 years.
This linkage rested solely on an agreement RC365 made with a Hong Kong-listed firm called Hatcher Group to work on AI development. Specifically, this deal is to upgrade the RC2.0 wealth management solutions app into an advanced AI-powered RC3.0 version.
Beyond that, though, there doesn’t appear to be much to warrant this comparison with Nvidia. Or to justify the stock’s valuation, which currently trades at around 43 times sales. The company did report a year-on-year doubling of its revenue, but this was a meagre sum of £1.69m.
The company will have to keep on doubling its sales just to sustain its lofty valuation. While not impossible, it’s going to be a tough ask, I feel.
The case for Ramsdens
Ramsdens is a different story altogether. Having been in business since 1987, over 25 years longer than RC365, the Teesside-based company has a solid foundation.
Its recent interim report, covering the six months up to the end of March, was very solid. The diversified pawnbroker’s revenue rose 33% to £39m while pre-tax profit surged by 68% to £3.7m.
It saw growth across all four business segments of foreign currency exchange, pawnbroking loans, precious metals dealing, and the selling of new and second-hand jewellery.
Now, Ramsden’s growth has been aided by the UK’s cost-of-living crisis. This tailwind may die down as inflation slows.
That said, the board is confident growth will continue, as it signed off on a 22% increase in the interim dividend. The stock carries a forward-looking dividend yield of 4.5%.
Meanwhile, unlike RC365, the P/E multiple of nine seems to offer great value.
And the winner is…
For me, it’s not even close. I think Ramsdens will be the larger company by 2030.
Now, I should disclose that I recently became a shareholder of the company. But even if I hadn’t, I think it’s hard to argue anything else here.
One has growing profits, a progressive dividend policy, and is attractively valued. The other is losing money, may never become profitable, and is outrageously valued.
Therefore, I rest my case.
