Should You Buy the Dip in Paltalk or DatChat?

In the last 18 months, communication platform companies have experienced a significant surge in demand for their suite of products and services. The COVID-19 pandemic led to global lockdowns and organizations had to shift towards a remote-first working business model which meant enterprises had to quickly adopt and subscribe to collaboration and communication tools or services.

Even though lockdown restrictions are relaxed in various countries, several companies continue to operate remotely as much as possible to improve employee retention rates and lower operating costs.

This trend is likely to continue going forward making communication companies, such as Paltalk (PALT) and DatChat (DATS) enticing long-term bets right now. So let’s see which between the two stocks should be part of your portfolio today.

Paltalk stock is up 528% in the last year

A micro-cap company valued at just $67.6 million, Paltalk operates as a communications software provider that develops multimedia social applications and secure communication solutions. It offers consumer applications for live video chats and a telecom application where users can have multiple numbers in any area code.

Paltalk stock has surged 120% in the last three months. The recent uptick in share prices can be attributed to the stock’s low-float numbers that leaves it open to manipulation by retail traders. In addition,  Paltalk was quite popular on social-media platform StockTwits which suggests there was no company specific news that drove the stock higher.

While communications companies have seen a massive growth in sales in the recent past, Paltalk’s revenue has declined from $26.35 million in 2018 to $12.83 million in 2020.  In the second quarter of 2021, revenue was up by just 1% year over year at $3.4 million. Its cash flow from operations stood at $600,000 in the first six months of 2021, up from $410,000 in the year-ago period. The company ended Q2 with a cash balance of $6.5 million and carries no debt on its books.

Paltalk’s trailing price to sales multiple is 5x which is quite steep for a company barely growing its top-line.

DatChat is a recent IPO

A communications software company DatChat develops mobile messaging applications. Valued at a market cap of $127 million, DatChat recently went public in August and has more than doubled in the last month. It offers DatChat Messenger & Private Social Network, a mobile app where users can communicate in a secure environment. The company has also developed a blockchain-based decentralized communications platform where consumers and businesses can connect directly with each other.

The stock lost close to 24% in market value on October 5 as its trading volume surged to 27 million, significantly higher than the stock’s average trading volume of just nine million.

The company is yet to generate any meaningful revenue and is focused on expanding its user base before monetizing it. DatChat confirms that its messaging platform is completely secure, and only those allowed by the user can view your posts and comments. These posts cannot be forwarded or shared and are entirely encrypted.

Are either of the stocks currently a good investment?

We can see that both Paltalk and DatChat have gained momentum on the back of manipulation by traders, making them vulnerable right now.  As we see today, both stocks are trading down more than 14%.

Both of these stocks are high-risk bets at current valuations.  I believe investors should avoid Paltalk and DatChat at this time.  

DATS shares were trading at $7.37 per share on Wednesday morning, down $1.53 (-17.19%). Year-to-date, DATS has gained 115.50%, versus a 15.84% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

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