5G-focused communications specialist Datasea (NASDAQ:DTSS) just announced that one of its subsidiaries has entered into an agreement with Hangzhou Chongda Technology. The purpose of this deal is to increase sales of 5G multimodal communication services in China. Still, while DTSS stock enjoys the potential of a burgeoning 5G ecosystem, concerns run high regarding its viability.
According to a press release, Guozhong Times — a subsidiary of an operating company controlled by Datasea — entered into a cooperation agreement with Hangzhou. Under the terms, Hangzhou Chongda can “purchase 5G multimodal communication delivery services over the course of the 12 months” starting as of Feb. 3. This proposed deal features an estimated total value of $30 million.
Multimodal services involve the integration of multiple modes of communication — such as voice, video and data — over 5G networks. Such technology is crucial not only because of facilitating low latency (or low lag), but also due to the support of diverse applications.
Datasea CEO Zhixin Liu said the following about the deal:
“We are pleased to enter into this new collaboration as it will help to identify potential customers that need our 5G multimodal communication delivery services, and enable us to quickly roll out our unique platform to new customers.”
Liu also noted that the company is “negotiating with major potential clients” and expects to reach more agreements. DTSS stock popped higher earlier today on the broader positive implications, although shares are now down about 2% as of this writing.
DTSS Stock Is Compelling on Paper. But Fiscal Performance Drags Sentiment.
Another factor that contributed to the sharp rise in DTSS stock — which initially gained 10% before slipping conspicuously below parity — is the forward-looking sales profile. As the press release states, there’s high demand for 5G multimodal services in China. This demand is also expected to only grow.
It’s not just typical corporate speak. According to MarketsandMarkets, the global 5G services sector reached a valuation of $121.8 billion last year. Analysts project revenue for the space to hit just over $1 trillion by 2028. If correct, this expansion would represent a compound annual growth rate (CAGR) of 52.4%.
As the research firm points out, the high-speed, low-latency capabilities of 5G networks “enable real-time data collection and analysis, fostering more efficient resource management.” Further, 5G’s applications cover compelling areas such as smart agriculture and smart grid systems, among others. Therefore, DTSS stock benefits from a large total addressable market.
However, the problem for Datasea has long centered on its market performance. According to Gurufocus, the company’s return on invested capital (ROIC) sits deep in negative territory. This metric represents a way to assess a business’ efficiency at allocating capital to profitable investments.
Notably, DTSS stock has lost almost 54% in the past one-year period. Shares are also down more than 80% over the past five years.
Why It Matters
A small bit of hope in DTSS stock may stem from the underlying revenue performance. In the fiscal year ended June 30, 2023, Datasea reported sales of about $7.05 million. That was a steep drop from the $17.1 million posted in the prior year. However, the company’s press release states that it recorded $18.3 million in revenue from 5G multimodal services in the first and second quarters of fiscal 2024.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
