When short sellers attack, watch out for the blowback. That’s a good policy for cautious investors to follow, and it can be applied to SOS Limited (NYSE:SOS) as there’s probably volatility ahead for SOS stock.
Headquartered in Qingdao, China, SOS provides big data, trade, digital asset management and other information tech-related services with a strong focus on artificial intelligence technology.
Among the company’s flagship products is cloud emergency rescue service SaaS platform. Moreover, SOS provides information security services as well as marketing-related data.
So far, SOS sounds like a value-added, future-facing, diversified technology company with the potential to address multiple markets. What could possibly go wrong?
A Closer Look at SOS Stock
Let’s just say that SOS stock has had some challenges in sustaining its overall uptrend.
For much of 2020’s second half, the stock stayed in a range between $1 and $3. Hence, it was classified as a penny stock — defined by the U.S. Securities and Exchange Commission as a stock that trades under $5 per share.
Of course, the bulls wanted to get SOS stock out of penny stock territory. And indeed, they managed to accomplish that goal during the first half of February 2021.
By Feb. 17, the share price reached a 52-week high of $15.88. So, the stock was now officially not a penny stock anymore. But would this last?
Unfortunately, a quick decline would soon commence as SOS stock fell to $4.76 on Feb. 26. However, the price action would stabilize after that, with the share price trading close to $6 now.
So, there’s a major conflict going on between the bulls and the bears. And mirroring that conflict is an ongoing battle between the company and a couple of well-known short sellers.
Here Comes Hindenburg
There’s no denying it. Short seller Hindenburg Research is famous for its scathing reports, which have been known to cause stock prices to fall hard and fast.
As InvestorPlace contributor Chris MacDonald reported, Hindenburg recently put SOS in its crosshairs. So, let’s break down the details of the verbal attack.
As MacDonald summed up, Hindenburg “accused SOS of misleading investors with false announcements, and highlighted discrepancies related to the company’s operations.”
Plus, Hindenburg evidently attempted to visit the address disclosed in SOS’s filings, but only found a hotel at that address.
Unsurprisingly, as InvestorPlace contributor Sarah Smith reported, Hindenburg had a short position in SOS. On top of that, Culper Research, another short-selling firm, had a short position of its own against SOS.
An SOS Signal
Given all of the foregoing, I can understand why investors would send out a distress signal.
But really, it’s the Hindenburg hit that hurts the most. Hindenburg even alleged that SOS copied elements of other companies’ websites and press releases.
One recent tweet from the short seller is a real bombshell:
“We are short $SOS, which we believe to be an obvious China-based shell game reanimating the corpse of a former China based company that earlier imploded 90% from its highs. We think SOS is a $0 and has significant regulatory risk.”
The allegations are so harsh that for the time being, I would simply advise folks to sit on the sidelines.
In the company’s defense, I will say that at least SOS is striking back. Specifically, SOS asserts that the claims against it are “distorted, misleading, and unsubstantiated.”
And the plot thickens as SOS “believes certain social media accounts of some Company board members may have been impersonated or disabled for short periods of time.”
So, things are starting to get a little weird here. Again, it’s best to just stay out of the trade.
The Bottom Line
Maybe Hindenburg’s allegations are true. At the moment, there’s no way of knowing what’s real and what’s not.
Until the dust settles and we can all get some clarity on these issues, it’s advisable to avoid SOS stock altogether.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.