After all, the company is involved in both these high-growth areas. Notwithstanding, that is not the reason to be bearish on this one. Rather, it’s the stop-start nature of its business operations. My colleague Thomas Niel describes the company as a “jack of all trends, disruptor of none.”
I couldn’t agree with him more. It seems IDEX seeks out business opportunities that are the latest hot trend and tries to exploit the situation to its advantage. The only problem is that it identifies a new trend after a while, then buys into that one without gaining a foothold in any industry.
As of this writing, it has fashioned itself as more of an EV business. It makes sense, considering Tesla (NASDAQ:TSLA) and the frenzy it’s generating. However, does the company have what it takes to become the next Tesla? Highly unlikely. The same can be said for its Ideanomics Capital unit.
Despite its recent acquisition of Timios Holding, don’t hold your breath if you think you are buying the next PayPal (NASDAQ:PYPL).
IDEX Stock: An Idea Whose Time Has Not Come
Ideanomics has gone through several transformations over the years. In its latest iteration, it’s more of an EV company with a financial services unit. In the third quarter of 2020, IDEX reported $10.6 million, of which $10.1 million were generated from the Mobile Energy Global (MEG) division.
While that is impressive, Q3 revenues for Chinese EV maker NIO (NYSE:NIO) came in at $666.6 million, an 146.4% jump year-over-year and an increase of 21.7% sequentially. NIO stock trades at 35.31x trailing P/E, whereas IDEX stock is at 52.28x.
Granted, while I think NIO is overvalued, at least in its case, you have a pureplay with some visible traction behind it. With Ideanomics, you have a company with no discernable track record in any major field that now has a market cap of $1.42 billion for just being in the same sector as Tesla.
Ever heard of the phrase, ‘Strike while the iron is hot?’ Well, the EV sector is doing so in spades. It’s issuing shares like there’s no tomorrow, taking advantage of the massive runup in stock prices. IDEX is taking it a step further.
In a recently filed 10-Q, IDEX has issued warrants to services providers. That seems strange for a company with a significant amount of cash on hand, $27.6 million as per the last quarterly report.
Total shares outstanding have increased to 238.9 million in Q3’20 from 132.7 million in Q3’19. A lot of these new shares are courtesy of the convertible debt that the company issued in 2020. It’s become a common way for companies to clean up their balance sheet or drum up cash, one that I am not a fan of, and neither are stockholders.
The Proof of the Pudding Is in the Eating
Since Ideanomics is a diversified company, there are plenty of products that it’s offering. However, its main claim to fame is the Treeletrik brand. Its owned by the company’s Malaysian subsidiary, Tree Technologies, and it’s getting a healthy amount of sales.
However, its focus is on South Asia at the moment and on Thailand and Indonesia in particular. These markets are emerging, and I wonder how many sales you can come up with in just those territories. Considering the trailing 12-month revenue figure of $15.8 million, not a lot.
Plus, electric cars are facing a challenging atmosphere in the United States. Billions in infrastructure costs are needed for the EV cars to be viable. And we are talking about the biggest economy in the world.
Still, Treeletrik and the larger MEG segment is where the company’s future lies. Apart from Treeletrik, Ideanomics has a business segment focusing on transforming diesel vehicles into electrically charged cars. Its also planning to launch its Medici Motor Works unit in North America in 2021.
However, it’s still an unproven business operation of a company that has pivoted in and out of several high-growth sectors. We certainly need more evidence of the company’s commitment to this sector and a consistent track record of EV sales before buying in.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.