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The Distress Signal for SOS Limited Might Be Overstated

It’s fair to say that there’s no shortage of controversy surrounding China-based technology company SOS Limited (NYSE:SOS). Due to a flurry of news items and accusations, holders of SOS stock have enjoyed breathtaking highs and suffered devastating lows within a brief span of time.

crypto sos stock
Source: biggunsband /

But let’s step back for a moment and define exactly what the company does. Presumably, it’s called “SOS” because the company provides the technology to facilitate medical and financial “rescue” services, and even roadside assistance.

The company also mines for cryptocurrency. Granted, that’s an odd combination of services. But hey, as long as the business is legitimate, there shouldn’t be any reason to complain, right?

Yet, that’s the issue at hand as a famous short seller has evidently targeted SOS Limited. So, should the stakeholders be worried, or pick up some shares at a reduced price?

A Closer Look at SOS Stock

Throughout 2020, SOS stock was classified as a penny stock — defined by the U.S. Securities and Exchange Commission as a stock that trades under $5 per share.

Moreover, there was a defined range for the share price as it stayed between $1 and $3 for much of 2020’s second half.

The breakout moment didn’t occur until early 2021. In mid-February, the stock broke out of penny-stock territory, rocketing to a 52-week high of $15.88 on Feb. 17.

Some folks might attribute that run-up to the activities of Reddit users, and particularly r/WallStreetBets participants.

That might or might not have been the main catalyst; it’s difficult to know for certain. In any case, the SOS stock price rally didn’t last for very long.

Unfortunately, the share price tumbled in late February and didn’t recover in March. Today, SOS trades just above the $5 mark.

The Hindenburg Disaster

Well-known analyst firm and short seller Hindenburg Research certainly hasn’t been coy in its stance on SOS Limited.

A scathing series of tweets posted on Feb. 26 establishes Hindenburg’s position, and it’s a decidedly negative one. First, the firm declared that it had a short position against SOS Limited while calling it an “obvious China-based shell game” and assigning the shares a price target of zero.

Next, Hindenburg asserted that SOS Limited’s principal office and headquarters doesn’t appear to exist.” Moreover, Hindenburg evidently “visited the address listed in the company’s SEC filings and found it was a hotel.”

The short seller also offered a more general criticism, tweeting that “stocks tied to blockchain have been on the run lately, swept up in the euphoria of Bitcoin (CCC:BTC-USD) breaking all-time highs.”

It seems that Hindenburg wasn’t the only institutional-level bear here. Reportedly, Culper Research had a short position against SOS Limited at around the same time that Hindenburg did.

SOS Claps Back

The company’s stakeholders should rest assured that SOS Limited isn’t taking these allegations lying down.

Indeed, SOS has asserted that the claims against it are “distorted, misleading, and unsubstantiated.”

Moreover, SOS “believes certain social media accounts of some company board members may have been impersonated or disabled for short periods of time.”

And interestingly, a firm known as Scorpio VC strongly criticized Hindenburg’s allegations.

In a report, Scorpio VC countered that “China’s ‘company registered address’ and ‘actual office address’ are two concepts… the actual office address does not necessarily match the [registered] address, and the SOS official website has updated the headquarters office address.”

Furthermore, SOS Limited has posted videos providing what appear to be virtual tours of the company’s cryptocurrency mining facility.

The Bottom Line

This is a tough situation to assess. Hindenburg’s allegations were harsh, but for all we know, those allegations might not stick.

I’m not going to recommend taking a large position size in SOS stock. Yet, a small position could be worth considering.

If you feel that the allegations have already been priced into the stock, and that SOS Limited’s counterattack might prevail, then picking up a few shares might not be a bad idea.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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