SOS (NYSE:SOS) supplies cloud-based emergency providers to people and companies. The corporate has additionally diversified into cryptocurrency mining and has been within the limelight for a similar. However SOS inventory hasn’t had an ideal run these days.
SOS inventory has been risky for the previous three months. It was $1.44 at the start of the 12 months and hit $15.88 in mid-February. Nevertheless, the inventory has pulled again from this excessive and is at present altering palms at round $4.80.
The inventory has persistently gone down since 2017. It as soon as exchanged palms at a excessive of $113 in 2017 and went as little as $0.83 in 2020.
Contemplating the latest volatility, SOS inventory seems to be dangerous and is greatest prevented at this stage. There are crimson flags with SOS inventory and right here’s why you must be careful.
SOS Inventory: Excessive Danger, Excessive Dilution
What do you make of a inventory that skyrockets someday and pulls again the following? Brief-term occasions like Reddit curiosity can solely push the inventory greater for a brief second. It seems to be like traders are inserting a number of religion within the latest upsurge however it’s a hype that may calm down any second.
Let’s check out the historical past of the corporate. Established in 2001 as a supplier of client loans, the corporate created a market for lending. It exited the enterprise in 2018 and ventured into crypto mining.
As a lender, the corporate couldn’t make income and the stability sheet was not spectacular. It made a well-timed transfer into the crypto trade however the trip has not been clean.
In 2019, the corporate suffered a loss of $10 million and the income declined by 38% 12 months over 12 months. It doesn’t have sufficient liquidity and is struggling heavy losses. The corporate has pushed funds for Bitcoin (CCC:BTC-USD) mining by issuing inventory and this has led to heavy share dilution which isn’t useful for shareholders.
SOS raised about $125 million in its most up-to-date spherical. As the corporate continues to dilute shares, it ought to on the very least justify its price to the shareholders. Traders are paying a premium for what seems to be to be of venture at greatest on the a part of SOS whereas the corporate works towards constructing a digital exchange asset at the price of inventory dilution.
For now, one can solely hope that it generates sufficient income sooner or later. The tempo at which the corporate is diluting shares is alarming and traders ought to see it as a crimson flag. Analysts additionally don’t supply a ranking for SOS inventory.
The Backside Line on SOS
Even when we don’t think about the basics of the corporate, it’s extremely dangerous to spend money on crypto-related firms at this stage. There was a large rise in bitcoin costs, however a crash can be catastrophic for lots of those extremely leveraged firms.
To achieve crypto mining, an organization must make an enormous funding. This the place SOS lacks. It has raised funds six instances since December however a enterprise can’t be run by issuing fairness every time it needs additional cash.
With a market cap of $963 million, the inventory is overvalued. How do you justify a excessive market cap with a decline in income and a loss? Even if you happen to determine to disregard the dangers of dilution and crypto mining, the valuation seems to be stretched.
There may be solely hypothesis we’re coping with proper now. Contemplating the shortage of curiosity by Wall Road analysts, the inventory is greatest prevented.
Till the corporate releases its 10Q for the March-ended quarter, we won’t have the precise figures to achieve perspective concerning the future. Contemplating the dangers related to SOS inventory, it doesn’t look engaging. The inventory seems to be extremely risky and should not generate returns within the close to future.
Keep away from the inventory in any respect prices.
On the date of publication, Vandita Jadeja didn’t have (both immediately or not directly) any positions within the securities talked about on this article.