Why SOS Stock Is Not a Good Buy

  • SOS (NYSE:SOS) is right down to 47 cents per share in comparison with over $7 per share in March 2021.
  • The firm just lately bought over 35 million American depositary shares at 56 cents to lift new funds.
  • Management’s lack of imaginative and prescient and readability makes SOS inventory a robust purchase.

Source: Artie Medvedev / Shutterstock.com

SOS Limited (NYSE:SOS) is a high-tech firm headquartered in Qingdao, China. SOS inventory gives a wide selection of choices, together with knowledge mining, knowledge evaluation and advertising companies, in addition to options to insurance coverage corporations. But SOS inventory has been stumbling for a 12 months and reveals no signal of regaining its ft.

In January 2021, SOS jumped into the highlight when it introduced that the corporate could be turning to crypto mining. The plan began with the acquisition of over 15,000 mining rigs, costing the corporate $20 million. In the course of the identical time, Bitcoin (BTC-USD) and Ethereum (ETH-USD) — the 2 main cryptocurrencies that now maintain a mixed market capitalization of round $1 trillion — had been positioned at all-time highs. Commentators, traders and stakeholders understood the rationale.

Nevertheless, trade specialists have been arguing within the background that SOS has not selected a particular set of merchandise to give attention to and is simply too depending on the unstable worth of cryptos. These issues proceed to carry it again.

Historic Financial Performance

SOS inventory is listed on the New York Stock Exchange (NYSE). In the final 12 months, the corporate has misplaced virtually 90%. The present market capitalization of SOS inventory is now $114 million and SOS inventory has an enterprise worth of $-69 million.

One factor to notice that makes it difficult for traders to put money into SOS inventory is volatility. Data reveals one-year volatility of 97.75 in comparison with SPDR S&P 500 ETF (NYSEARCA:SPY) one-year volatility of 15. In essence the inventory is sort of 7x extra unstable than the market.

During the identical interval, the corporate has underperformed the market by virtually 90%.

The chart under demonstrates efficiency returns:

SOS stock performance

Source: Koyfin.com

What Is Going On With SOS Stock?

One may argue that at the very least SOS inventory is working inside an electrifying trade. Just final week, the Bitcoin convention in Miami drew in extra of 25,000 folks. The purpose was to “talk about and glorify cryptocurrencies.” Peter Thiel, Cathie Wood, Anthony Scaramucci and Michael Saylor had been amongst the influential company and audio system.

However, this previous March the corporate raised outside capital from accredited traders within the type of American Depositary Shares (ADS). During the transaction, the corporate bought $20 million of inventory to be able to use the proceeds for additional international enlargement.

This isn’t the primary time that the corporate issued additional inventory. In February 2021, SOS inventory raised $110 million by promoting shares at a 21% low cost to their worth on the time. The cash was slated to gasoline the corporate’s crypto enterprise. SOS inventory fell about 17% on the information.

It’s not shocking. Inevitably, when a firm decides to promote inventory to lift money, present shareholders lose belief and conviction. Selling inventory on this method can erode administration’s credibility and point out the dearth of a clear company technique and product roadmap.

Chinese policymakers and legislators haven’t been making it simpler for SOS inventory. Last 12 months, China banned crypto on two separate events. Firstly, the Chinese authorities disallowed monetary establishments from doing any transactions in crypto. Thereafter, in September 2021, Chinese regulators banned crypto mining and cryptocurrencies total. Therefore the corporate has been “pushed” to department out in North America, the place crypto legal guidelines and communities are extra supportive and favorable.

Should You Invest In SOS Stock?

There are numerous underlying points that can decide the long-term viability of the corporate. The most vital is the general cryptocurrency adoption price. That finally determines crypto worth and demand for mining.

Secondly, watch the way in which regulators within the U.S. will deal with crypto as an funding asset class, and thirdly, how crypto/blockchain corporations align with environmental, social and governance concepts (ESG). Unless crypto is regulated and is verified as ESG compliant, giant institutional traders won’t be able to allocate capital to blockchain and crypto associated asset courses.

In different phrases, there must be a web influx from institutional traders for the inventory to do properly.

Adding extra issues, the chart under demonstrates SOS inventory’s efficiency in comparison with Bitcoin (BTC-USD) and Ethereum (ETH-USD).

Chart shows BTCUSD vs ETHUSD vs SOS stock

Source: tradingview.com

The backside line is that crypto utilization can be extremely correlated to SOS inventory steadiness sheet, contemplating its present enterprise mannequin. Therefore the long run is trying foggy for the corporate. And its historic efficiency and belief in administration isn’t robust sufficient to help an funding into the inventory. The official web site of the corporate doesn’t present the standard transparency that listed equities do, and so the income segregation and future path isn’t clear sufficient for my style.

Adding to the issue, the corporate obtained a letter from the NYSE in February saying it wanted to get its share worth again over $1 or it may face delisting.

In mild of all these points, I’ve robust doubts in regards to the long-term efficiency of the corporate. I’d keep away from SOS inventory for now.

On the date of publication, Jonathan Tang didn’t have (both instantly or not directly) any positions within the securities talked about on this article. The opinions expressed on this article are these of the author, topic to the InvestorPlace.com Publishing Guidelines.

Jonathan Tang has gained in depth expertise within the monetary companies trade in London. He has accomplished useful initiatives for corporations comparable to Bloomberg, London Stock Exchange Group and FactSet. He holds a grasp’s diploma in Investment & Risk Finance and has accomplished an MBA course on the London School of Economics. Jonathan has a ardour for fintechs that democratize investing, inventory market and public equities, ETFs, start-ups and actual property.


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