In a time when cloud computing is a red-hot market sector, Chinese company Taoping (NASDAQ:TAOP) seems poised to deliver outstanding value to its shareholders. On paper at least, Taoping stock appears to be an obvious tech-niche winner.
On the other hand, sometimes the most obvious trade is the wrong one. Even while Taoping combines software-as-a-service with cutting-edge smart technology management, the company hasn’t demonstrated an ability to translate innovation into robust, consistent profits.
Taoping’s Smart Cloud platform, which “provides multidimensional smart services for the media and retail industries by integrating AI with big data innovation,” is worth investigating. Yet, the price action of TAOP stock is troubling. As a result, this might not be the right time to take a long position in the shares.
A Closer Look at Taoping Stock
Even though you might not have heard of Taoping, it has actually been trading for more than 10 years. It’s listed on the Nasdaq stock exchange and has decent daily trading volume.
Over the years, it has declined but there have been big price spikes. It would have required excellent timing to catch those spikes, however. Every time the bulls attempt to push TAOP above $5, the bears push it right back down.
For most of 2020 so far, TAOP has been classified as a penny stock. By definition, a penny stock trades below $5 per share. The bulls will really need to get the stock price above that level and keep it there. Yet, it won’t be easy because they’ll be fighting against the long-term trend.
Nothing to Celebrate
There was a brief time in July of this year when TAOP popped above the $5 mark. However, this wasn’t due to any great news. In actuality, the share price was artificially raised as Taoping enacted a 1-for-6 share split.
As InvestorPlace contributor William White reported, the purpose of the reverse split “was to push TAOP stock above the $1 price minimum that is required to trade on the NASDAQ stock market.”
So, while the 351% share-price move might appear to be a positive development, there’s really no cause to celebrate. In this instance, the reverse stock split was little more than an act of desperation carried out to maintain compliance with the exchange’s rules.
By August 28, TAOP stock had already declined to $2.84. Therefore, it’s entirely possible that Taoping could fall out of compliance with Nasdaq’s rules again in the near future.
Software Upgrade, Stock Downgrade
It’s not all bad news at Taoping, though, as the company has upgraded its intelligent cloud platform. The company’s Smart Cloud platform, which uses cloud-based, artificial intelligence-enhanced methodologies to standardize operation and maintenance across multiple devices, is a significant revenue source for Taoping.
Supposedly, the upgrade to Taoping’s Smart Cloud platform should optimize its performance and, hence, the end users’ operating experience. Taoping CEO and Chairman Jianghuai Lin emphasized just how important this platform is to his company’s business model:
“The platform service fees for the operation and maintenance services and transactions concluded on Taoping Smart Cloud Platform are expected to bring considerable and sustainable cash flow to the Company.”
Lin made that statement in late July. Interestingly, that occurred right around the same time as the reverse share split. And unfortunately, neither the reverse split nor the platform upgrade prevented the TAOP stock price from declining after the initial spike.
The Bottom Line
As a stock trader, you have to choose your battles carefully. This company ought to be doing well as a smart technology management innovator.
Nevertheless, there’s an undeniable long-term downtrend in Taoping stock. Owning the shares now would, most likely, mean fighting a losing battle. You can appreciate the company, but as a trader, it’s best to admire it from a distance.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.