Ideanomics (NASDAQ:IDEX) recently reported another loss in a string of losses. The problem? Frankly, its business model does not have enough upside — at least for the time being. As a result, IDEX stock is likely to keep cascading down after its recent runup.
But what does Ideanomics do? If you haven’t heard, the company facilitates the adoption of commercial electric vehicles (EVs). It does so via its Mobile Energy Group (MEG) division by providing group purchasing discounts on EVs and EV batteries, financing and charging solutions.
So, with EVs being such a popular trend right now, you’d think that this name would be turning around. However, IDEX just can’t seem to right the ship.
IDEX Stock and the Business Model Failure
On Nov. 9, Ideanomics reported a $12 million operating loss in Q3. This was before $2 million in interest expenses.
The problem is its model produced a gross profit of just $700,000 for the quarter on revenues of $10.6 million. Naturally, making a 7% commission on EV sales is not going to generate enough profits for the company to cover its overhead for a good while.
For example, Ideanomics had $7.6 million in selling and administrative expenses for the quarter. This is before $3.97 million in professional fees and a little over $1.3 million in R&D spending.
In other words, cash expenses totaled $12.87 million — or over 121% of gross sales.
So, the company’s business model has no shot of making any kind of profit with this plan. Despite its name, Ideanomics makes no economic sense.
But if that’s the case, why does IDEX stock have a $517 million market capitalization?
What’s Going On?
As recently as Nov. 13, IDEX stock was trading below $1.00 per share. On Nov. 23, however, the company increased its stake in Solectrac, a company that produces 100% battery-powered electric tractors. That brought IDEX’s investment to 22% on a post-money basis after other investors bought in.
This must be what the market is so excited about. But the problem is that this passive stake in the electric tractor company will not provide any additional income. Instead, it essentially makes Ideanomics into a sort of pseudo-private equity firm that is public and focused on EV investments in small private companies.
In other words, the investment makes no sense in terms of helping its business become profitable.
Here is the reality of what is going on with this company. IDEX produced a cash flow loss from operations of $21.9 million so far this year. This is based on the cash flow statement it filed with the U.S. Securities and Exchange Commission (SEC) on Nov. 9 (Page 10). In addition, the firm burned through more money in investing activities. Therefore, over nine months, it used up over $22 million. That kind of spending can’t go on for very much longer.
As of the end of the quarter, the company now has just $27.6 million in cash. So, if it keeps on working through cash at the rate it’s going, Ideanomics is will quickly run out of capital.
Unless, of course, it tries to raise more equity at its recent high prices. So, don’t be surprised if you see another capital raise from this name soon.
What To Do With IDEX
There are no analysts covering Ideanomics. To put it bluntly, IDEX stock is simply too speculative for most sell-side analysts and brokerage firms.
The problem is that there is no way to analyze the company’s economics because its business model makes no sense right now. Clearly, there is no prospect of it making an operating profit any time soon.
So, only the most speculative of investors would have an interest in Ideanomics at this point. Sure, its recent investment in an upstart electric tractor company may be worthwhile in the long run. But for the time being, it will do nothing to help the company produce profit. That means there is little upside in IDEX stock.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.
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