In this article, I have evaluated prominent tech stocks, Riot Platforms, Inc. (RIOT) and GigaCloud Technology Inc. (GCT), to determine which could generate better returns. After thoroughly evaluating these stocks, I think GCT might be a superior choice for the reasons discussed in this article.
Rapidly increasing digital transformation across industries, adoption of new technologies such as artificial intelligence, IoT, and blockchain, and a growing emphasis on leveraging the core competencies by outsourcing non-core operations are the major driving factors of the tech service market.
The global information technology market is expected to grow to $119.95 trillion in 2027 at a CAGR of 7.9%.
Additionally, IT outsourcing has become more than a simple cost-reduction technique with cloud migrations and service options. The United States IT Services market is expected to reach $306.10 billion by 2028, growing at a CAGR of 7.1% until 2028.
In terms of price performance, GCT is a clear winner, with 45% gains over the past month compared to RIOT’s 36.6% decline. Also, GCT has gained 2.6% intra-day compared to RIOT’s 10.6% decline.
Here are the reasons why I think GCT might perform better in the near term:
Recent Developments
On June 26, 2023, RIOT announced that it had entered into a long-term purchase agreement (the “Agreement”) with MicroBT Electronics Technology Co., LTD, through its manufacturing subsidiaries, a prominent manufacturer of Bitcoin miners with production facilities in the United States. Under the Agreement, RIOT had secured an initial order of 33,280 next-generation Bitcoin miners from MicroBT.
Conversely, on June 14, 2023, GCT announced that its board of directors had approved a share repurchase program to repurchase up to $25 million of its Class A ordinary shares, par value $0.05, over the next 12 months.
Recent Financial Results
In the fiscal second quarter that ended June 30, 2023, RIOT’s total revenue came in at $76.74 million. Its operating loss came in at $32.48 million, while its net loss stood at $27.69 million. Also, net loss per share came in at $0.17.
On the contrary, GCT’s total revenue for the fiscal second quarter ended June 30, 2023, rose 13.9% year-over-year to $153.13 million. The company’s net income increased 201.5% year-over-year to $18.39 million. Additionally, its net income per ordinary share increased 200% year-over-year to $0.45. Its adjusted EBITDA increased 219.3% year-over-year to $24.87 million.
Past And Expected Financial Performance
Over the past three years, RIOT’s revenue grew at a 228% CAGR. Analysts expect RIOT’s revenue to grow by 31.2% this year and 87.1% in the third quarter ending September 2023. However, its EPS is expected to be negative $0.99 this year, negative $0.26 in the current quarter ending September 2023, and negative $0.23 in the next quarter ending December 2023.
Conversely, GCT’s revenue has increased at a CAGR of 58.8% over the past three years. Its revenue is expected to increase by 22.5% this year and 27.8% in the third quarter ending September 2023. Its EPS is expected to be $1.55 this year, $0.36 in the current quarter ending September 2023, and $0.35 in the next quarter ending December 2023.
Valuation
RIOT’s forward P/S multiple of 7.14 is higher than GCT’s 0.79. Additionally, RIOT’s forward EV/Sales multiple of 6.35x is higher than GCT’s 0.71x.
Thus, GCT is relatively more affordable.
Profitability
RIOT's trailing-12-month EBIT margin of negative 108.28% is lower than GCT’s 11.33%. In addition, RIOT’s trailing-12-month asset turnover ratio of 0.18x is lower than GCT’s 1.35x.
Furthermore, RIOT’s trailing-12-month ROCE, ROTC, and ROTA of negative 21.82%, 13.48%, and 20.31% are lower than GCT’s 23.04%, 11.90%, and 10.43%, respectively.
Thus, GCT is more profitable.
POWR Ratings
RIOT has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. Conversely, GCT has an overall rating of A, translating to a Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. RIOT has a D grade for Quality. Its trailing-12-month cash per share of 1.59% is 14.8% lower than the industry average of 1.86%. Its trailing-12-month asset turnover ratio of 0.18x is 70.2% lower than the industry average of 0.61x.
On the other hand, GCT has a B grade for Quality. Its trailing-12-month cash per share of 5.87% is 152.3% higher than the industry average of 2.33%. Its trailing-12-month asset turnover ratio of 1.35x is 35.6% higher than the industry average of 1.00x.
Moreover, RIOT has a D in Sentiment in sync with its unfavorable analyst estimates
In contrast, GCT has an A grade for Sentiment consistent with favorable analyst estimates.
Among the 76 stocks in the Technology - Services industry, RIOT is ranked #74, while GCT is ranked #4.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, and Stability. Get all RIOT ratings here. Click here to view GCT ratings.
The Winner
Many companies are now choosing applications hosted in the cloud for their day-to-day operations. Companies are also opting for cloud-based data storage, thus boosting the demand for IT services. Industry players RIOT and GCT are expected to benefit from these industry tailwinds.
However, RIOT's poor profitability and elevated valuation multiples make its competitor GCT the better buy.
Our research shows that the 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 Technology - Services here.
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GCT shares were trading at $11.65 per share on Friday morning, down $0.24 (-2.02%). Year-to-date, GCT has gained 104.75%, versus a 14.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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