Is HeartCore Enterprises Stock a Good Buy?

All things considered, you wouldn’t expect a country forced to use fax machines to disseminate handwritten information among medical institutions, regional public-health centers and local government agencies to effectively mitigate the damage of the COVID-19 pandemic. Indeed, quick distribution of critical resources was key to how western nations addressed the global health crisis.

Nevertheless, this paradox is what makes Japan both fascinating and frustrating. Though the island handled the pandemic better than many other countries, the crisis also exposed surprising lapses in digitization-based infrastructure — ironic considering Japan’s reputation as a technology powerhouse.

Still, this vulnerability opens the door for positive change, one that digital transformation specialist HeartCore Enterprises Inc. hopes to catalyze.

What is HeartCore Enterprises?

A software specialist, HeartCore Enterprises provides digital solutions via two business units. First, the company runs a customer experience management (CXM) platform that includes marketing, sales, service and content management systems. Second, HeartCore features a digital transformation arm, allowing its clients to benefit from innovations in robotics process automation, process mining and task mining.

Based in Tokyo, Japan, HeartCore as of Sept. 30, 2021 commanded what it terms 819 total customers in its domestic market (561 of which were paying customers) and 23 clients in international markets, including one paying client. HeartCore represents one of the few but growing number of Japanese firms choosing to list on a major U.S. exchange, possibly signaling the early stages of a paradigm shift.

When is the HeartCore Enterprises IPO Date?

Although the initial public offering (IPO) — the first time a private enterprise distributes its equity shares to retail investors — dominated domestic headlines over the trailing two-year period, global markets certainly didn’t abstain from the party. True, U.S.-based IPOs generated a collective valuation of over $301 billion in 2021. However, global market debuts contributed a total tally of $594 billion in the same period.

Although Japanese firms over the last several years have actually seen their blue chips de-list from major exchanges in favor of lower-fee over-the-counter markets, HeartCore is attempting to corral the winds in the opposite direction. The digital transformation specialist is scheduled to enter the IPO calendar on Feb. 10, 2022.

Under the initial terms of the deal, HeartCore sought to raise $15 million through the distribution of 2.5 million shares. Management provided a pricing estimate between $5 and $7 per share. At the midpoint of this range, the company would have commanded a fully diluted market value of $115 million.

However, a day prior to go time, HeartCore announced that it would distribute 3 million shares at $5 each. Notably, the company granted its offering’s underwriters a 45-day option to purchase an additional 450,000 shares at the public offering price. Expectations call for the IPO to close on or about Feb. 14, subject to certain closing conditions.

Boustead Securities, LLC represents the managing underwriter and bookrunner for the offering. Shares will trade on the Nasdaq exchange under the ticker symbol HTCR.

Perhaps more so than your typical IPO, the public debut of HeartCore will raise plenty of curiosity, potentially serving as a benchmark for future new listings from the Land of the Rising Sun. Primarily, as the Brookings Institute noted, “prioritizing digital transformation has never been more important for Japan.”

In short, success in this game-changing transition “largely determines its ability to adjust to profound demographic changes brought on by an aging and contracting population, find new sources of competitiveness and drivers for productivity at home and consolidate its international role in securing a data governance regime that delivers on the promise of free data flows with trust.”

Undeniably, the opportunity for upward mobility in HTCR stock is palpable — as long as the stars align correctly. Whether that happens or not remains a key concern, especially with the Federal Reserve signaling hawkish policies to combat surging inflation. However, no guarantee exists that the Fed will be successful in managing skyrocketing prices, possibly leading to a severe correction in the equities sector.

HeartCore Enterprises Financial History

Although a narrative for a particular new listing could compel you to consider capitalizing your instinct, before you do, it’s best to consider the company’s financials. Frankly, the devil is in the details when it comes to high-risk opportunities like HTCR stock.

At an initial glance, though, HeartCore Enterprises manages to bring some impressive results to the table, per its Form S-1 IPO prospectus filed with the U.S. Securities and Exchange Commission (SEC). Back in 2019, the digital transformation expert rang up $7.2 million in revenue, leading to a gross profit of nearly $2.7 million. However, in the pandemic-disrupted year of 2020, HeartCore delivered top-line sales of over $9 million, up 25% from the year-ago period.

As well, gross profit for that year was slightly over $4 million, translating to a 51% year-over-year growth rate. Though the nominal figures are nothing to write home about, that HeartCore managed to produce strong gains on the top line during the COVID-19 disruptions is remarkable. That’s all the more so when you factor in that Japan has historically lagged in the digitization department, per the Brookings Institute.

Recently, during the nine months ending Sept. 30, 2021, HeartCore posted $8.45 million in sales, leading to a gross profit of $4.08 million. These figures represented an increase of 27% and 34%, respectively, over the year-ago period.

Unlike many other technology-driven small-capitalization firms, HTCR stock is backed by positive net income. In 2020, HeartCore posted $155,064 on the bottom line, while in the first three quarters of last year, it produced a net income of $414,826. In contrast, the prior-year comparison saw net income of $398,315.

While you might be thinking at this point that HTCR stock is a steal, you must realize that its earnings per share is only 3 cents for the nine months ending Sept. 30, 2021. Based on a simple calculation for price-earnings (PE) ratio using the $5 initial offering price, the math translates to nearly 167 times earnings.

According to Statista.com, the PE ratio for North American-listed software companies stood at 51 times. Therefore, you risk paying a hefty premium for HTCR stock.

HeartCore Enterprises Potential

When it comes to the potential of HeartCore Enterprises, the primary motivation for acquiring HTCR shares is the underlying total addressable market. According to experts in the field, the digital transformation sector could grow from $521.5 billion in 2021 to a staggering $1.25 trillion by 2026, representing a compound annual growth rate (CAGR) of 19.1% within the forecasted period.

Per MarketsandMarkets.com, “Various factors such as increasing spending on marketing and advertising activities by enterprises, changing landscape of customer intelligence to drive the market and proliferation of customer channels are expected to drive the adoption of digital transformation technologies and services.”

This issue is more pronounced in Japan. According to McKinsey & Company, it “estimates that 70% of the value created by digital comes from transforming existing businesses; the remaining 30% is from creating new, disruptive businesses.”

However, not everything about HTCR stock is encouraging. For starters, HeartCore’s valuation puts the company into nano-cap status, even riskier than small-cap fare.

Fundamentally, McKinsey notes that “Japan has unique disadvantages that put it behind digital leaders such as the U.S. and China. Trying to drive digitization without thoroughly understanding these disadvantages and addressing them head-on will only lead to failed digital transformations.” As always, due diligence is your friend.

Where to Buy HeartCore Enterprises IPO (HTCR) Stock

Because the best brokers compete on similar consumer incentives, focus your time on finding the platform that ideally suits your needs.

HTCR Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

HTCR Pre-IPO

Unfortunately, no pre-IPO opportunity is available for HTCR stock.

A Rebel Without a Cause

As a country steeped in tradition, Japan is an open conundrum, embracing new ideas while simultaneously rooted in longstanding cultural practices. However, the COVID-19 pandemic exposed its slow integration of digitization, which in theory opens doors for HTCR stock. Still, HeartCore must implement the right strategies or risk failure through irrelevancy.