The shares of Thailand-based integrated securities solutions provider Guardforce AI (GFAI) have plummeted in price since its ADR listing last September, due to the company’s bleak fundamentals amid extended market weakness. As bearish market sentiment predominates amid an escalating Ukraine-Russia war, will GFAI be able to regain forward momentum soon? Read more to learn our view.

Headquartered in Bangkok, Thailand, Guardforce AI Co., Limited (GFAI) is an integrated security solutions provider that operates across Asia. It provides cash-in-transit, ATM management, cash center operations, cash and coin processioning, and other cash management-related services.

The company listed its shares on the Nasdaq Stock Exchange on Sept. 29, 2021. GFAI offered 3.61 million units, with each unit comprising one share and one warrant. The company priced each unit at $4.15, raising $15 million through the initial public offering.

But GFAI’s shares have  slumped 85.6% in price since its stock market debut to close yesterday’s trading session at $0.57. Also, the stock has fallen 47.2% year-to-date. GFAI’s poor financials and concerns regarding its ability to operate as a going concern amid surging market volatility have driven the stock’s decline since the ADR’s listing.

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

Poor Preliminary Results

GFAI’s net revenue is expected to range from $33 million to $35 million in its fiscal year 2021 (ended December 31, 2021), representing a 9.3% to 14.5% decline year-over-year. As of Dec. 31, 2020, the company had a $4.70 million deficit and negative equity of $2.20 million.

GFAI has stated in previous financial reports that its negative operating profits raise concerns regarding its ability to operate as a going concern. Also, the company might find it challenging to raise additional funds to meet its working capital expenses because of the concerns raised regarding its ability to continue operating as a going concern.

Operational Risk

Historically, GFAI has generated a significant portion of its revenue from four commercial banks and one state-owned bank based in Thailand. As of Dec. 31, 2020, GFAI’s top five customers contributed 72.4% of its  total revenue. As a large percentage of its total revenue is concentrated with a limited number of customers, the company is subject to immense risk if future demand for its services from its top five customers fluctuates. Also, some of its long-term contracts with its primary customers allow them to terminate GFAI’s services.

In addition, GFAI’s cash-in-transit operations require large volumes of fuel consumption. As oil prices surge amid the escalating Russia-Ukraine war,  the company’s cost of operations is expected to rise considerably in the coming months. However, because the company usually enters three-year supply contracts at fixed and discounted rates, GFAI will likely be unable to pass on the added costs to its customers, thereby negatively impacting its profit margins.

POWR Ratings Reflect Bleak Prospects

GFAI has an overall D rating, which translates 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.

GFAI has a grade of D for Stability and Quality. The stock’s high 2.99 beta is in sync with the Stability grade. In addition, the company’s negative operating profits justify its  Quality grade.

Among the 52 stocks in the D-rated Consumer Financial Services industry, GFAI is ranked #49.

Beyond what I have stated above, view GFAI ratings for Growth, Sentiment, Momentum, and Value here.

Bottom Line

GFAI’s operations are heavily dependent on cash transactions. As the world gradually moves toward digital payment methods, GFAI’s business model is at risk. Furthermore,  as countries worldwide develop digital currencies, the use of cash is expected to decline over the long term. Thus, GFAI’s operations might become obsolete if it is unable to adapt to the changing trends. Given this backdrop, we think the stock is best avoided now.

How Does Guardforce AI (GFAI) Stack Up Against its Peers?

While GFAI has a D rating in our proprietary rating system, one might want to consider looking at its industry peers Regional Management Corp. (RM), Ezcorp Inc. (EZPW), and OneMain Holdings, Inc. (OMF), which have a B (Buy) rating.

GFAI shares fell $0.57 (-100.00%) in premarket trading Thursday. Year-to-date, GFAI has declined -47.22%, versus a -10.01% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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