In an age of synthetic intelligence (AI), UK translation firm RWS Holdings (LSE:RWS) seems to be just like the equal of dial-up web. Because of this, the inventory has fallen 76% within the final 5 years.

This, nonetheless, might be an enormous mistake – revenues are rising and the corporate has an AI product that generates actual worth for purchasers. On prime of this, the inventory comes with a 9% dividend yield.

AI

At first sight, the rise of AI ought to spell massive hassle for RWS – automated options ought to be capable of translate paperwork extra rapidly and extra cheaply. And that’s why the inventory has been going down. 

Nevertheless, an enormous a part of the corporate’s revenues come from specialist translations in areas like regulation, healthcare, or finance. These are sometimes extremely technical and the price of an error will be large. 

That makes outsourcing translation to AI to try to avoid wasting money an enormous threat. Against this, RWS has translators with particular experience in these areas to try to keep away from these pricey errors. 

Dangers

Make no mistake about it – it is a dangerous inventory. Because the current efficiency of Nvidia has proven, something to do with AI is tough to forecast for even the most effective analysts. 

On prime of that, RWS has seen revenues fall over the past couple of years. The corporate doesn’t see this as a characteristic of everlasting disruption, although – it’s attributing it to a cyclical downturn in finish markets.

Income have additionally fallen attributable to impairment costs regarding its acquisition of SDL (an AI-enabled translation enterprise). These are declining however there’s an ongoing threat with different current acquisitions.

There’s little doubt the inventory comes with dangers and these can’t be ignored. However there are additionally some very enticing potential rewards for buyers to contemplate – most notably, a 9% dividend.  

Rewards

When a inventory comes crashing down – and ‘crashing’ is the phrase for RWS – it’s all the time value a better look to see whether or not the dividend is in peril. However there are some sturdy causes for pondering it isn’t.

The primary is gross sales aren’t declining any extra – the agency reported a return to development in 2024 and is anticipating this to proceed. That helps the thought its current challenges are momentary, at the least partially.

One other is that – regardless of its difficulties – RWS has persistently elevated its dividend over the previous few years. So with issues choosing up within the underlying enterprise, this seems to be prone to proceed.

The third is that it has been incorporating AI into its current merchandise. And its prospects are seeing real outcomes from this, with up to 65% enhancements in effectivity throughout provide chains. 

Ought to I purchase the inventory?

It’s simple to get swept alongside by a story of a enterprise whose core product is being changed by AI options that do the identical factor quicker and cheaper. However the actuality is way more difficult.

If the market is prematurely writing RWS off, there might be an enormous alternative for buyers right here. I’m nonetheless making an attempt to work out whether or not a 9% dividend is sufficient to entice me to take the chance.