SOS Stock Is Both Way Overvalued and Too High-Risk to Take a Chance

Crypto mining shares are the online beneficiaries of the superb Bitcoin (CCC:BTC-USD) bull run that reveals no signal of stopping. However, one that always will get misplaced within the shuffle is SOS (NYSE:SOS) inventory.

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The firm mined its first bitcoin on the finish of February, and traders at the moment are betting large that they might have a multi-bagger on their arms.

However, a phrase of warning. Although the corporate is putting in crypto-mining machines quickly, we nonetheless want to see some strong fundamentals to justify SOS inventory rising greater than 250% year-to-date.

In March, it put in its second fleet of 5,000 cryptocurrency mining rigs bringing complete capability to 353 Peta-Hashes per second (PH/s) for mining Bitcoin and 707 Giga-Hashes per second (GH/s) for mining Ethereum (CCC:ETH-USD).

For the primary quarter, the corporate expcects to generate at the least 41 Bitcoins and 909 ETH, however the necessary factor to observe right here is that it’ll want to proceed constructing capability. SOS stays closely dependant on crypto costs to stay steady or rise within the foreseeable future.

The firm has additionally issued a lot of fairness lately to gasoline its growth. Considering SOS wants to maintain constructing capability, traders ought to get used to these dilutive fairness points.

In abstract, SOS is an thrilling albeit dangerous firm. You stand to make a lot of cash or get utterly worn out along with your funding. Hence, you must solely make investments the cash that you’re prepared to lose.

There Is Substance Behind SOS Stock

Bitcoin mining shares have gained quickly within the final a number of months. Investors with a diploma of danger tolerance have made wholesome good points, and there’s nothing to counsel the pattern will let up.

However, even amongst crypto-mining shares, you will see that hits and misses. SOS, particularly, appears a inventory that’s nonetheless discovering its ft within the crypto area. The Chinese software program firm has been listed on the NYSE since 2017 as American Depositary Shares, or ADSs.

Its core enterprise focuses on rescue financing in well being, insurance coverage, and monetary companies, amongst different areas. On a brilliant observe, this space of the enterprise is profitable and money circulate constructive.

Unfortunately, as with a number of different firms in current occasions, reminiscent of Riot Blockchain (NASDAQ:RIOT), SOS has determined to add crypto-miners to the checklist of issues it does.

However, not like RIOT, there’s one factor that’s going for SOS: a observe file of success in different enterprise areas. Hence, the keenness surrounding the corporate just isn’t unfounded because it’s not a fly-by-night operation by any means.

Hindenburg Research realized this the arduous method. The short-seller made a number of allegations towards SOS. Hindenburg has a historical past of taking down high-profile targets, electrical truck maker Nikola (NASDAQ:NKLA) being a prime example. Yet, this time they got here up quick, pardon the pun.

Scorpio Venture Capital got here out with a rebuttal, and the skepticism surrounding the allegations has since dissipated. The backside line, the corporate is respectable.

Betting on a Risky Investment in a Risky Sector

At this level, you don’t want me to let you know investing in crypto is fraught with danger. Despite bitcoin costs steadying, a monumental drop may at all times be across the nook.

Plus, crypto mining is an costly funding. It requires a wholesome quantity of capital that wants to be replenished often. According to SEC filings, from Dec. 22, 2020, to Feb. 18 SOS issued fairness on six separate events. It raised one other $125 million lately by means of the difficulty of 25 million ADRs at $5 per ADR.

You can’t blame the corporate for making the most of the crypto bull run. However, all this dilution is sure to meet up with the SOS inventory value.

There can also be the small matter of crypto costs. Although they’re extra steady now than a 12 months in the past, it stays a precarious proposition to put money into the area. SOS, for its half, stays dedicated.

On March 24, the high-technology firm revealed it had purchased the license to use a blockchain asset exchange software system for constructing a digital asset alternate.

“This is a key step in our blockchain and cryptocurrency technique,” Chairman and Chief Executive Officer Yandai Wang defined. “The digital asset alternate is a vital a part of our objective to present blockchain companies, digital asset safety companies, and Decentralized Finance (DeFi) companies.”

Alongside its mining purchases, that is excellent news for SOS stockholders, however, as I’ve outlined, the dangers stay excessive.

SOS Is Overvalued Considering the Risk

For the danger that you’re endeavor, SOS inventory doesn’t appear very engaging.

There are a number of crypto-mining shares like Hive Blockchain Technologies (OTCMTKS:HVBTF), Marathon Digital Holdings (NASDAQ:MARA) and Hut 8 (OTCMKTS:HUTMF) which you can put money into to play this area.

These include their very own set of dangers and are additionally overpriced like SOS — Hut 8 is the most cost effective at 24 occasions price-to-sales.

Shares will maintain spiking now and again contemplating the sector by which the corporate operates. However, we’d like extra of a long-term story to verify the funding as a good one.

Until then, solely play with the cash that you’re prepared to lose.

On the date of publication, Faizan Farooque didn’t have (both instantly or not directly) any positions within the securities talked about on this article. 

Faizan Farooque is a contributing creator for InvestorPlace.com and quite a few different monetary websites. Faizan has a number of years of expertise analyzing the inventory market and was a former information journalist at S&P Global Market Intelligence. His ardour is to assist the common investor make extra knowledgeable selections relating to their portfolio.

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