Ideanomics Is Not a Buy Just Yet, Despite Some Positive News

Ideanomics (NASDAQ:IDEX) stock is one of the more interesting electric vehicle plays out there.

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Professional wrestling scion Shane McMahon founded Ideanomics as a financial technology company, China Broadband as it was known at the time, headquartered in New York.

Since that time, the financial technology company has gone through several iterations. Unfortunately, that has earned it a reputation of moving in and out of high-growth industries without ever stabilizing its position in any of them.

Shares have shot up 263% in the last year, largely down to its EV ambitions.

Ideanomics operates two main divisions, Mobile Energy Global and Ideanomics Capital, to conduct its business. One deals with helping consumers get access to commercial electric vehicles, and the other offers fintech products.

Last year, EV revenue came in at $19.5 million, an increase of $16.8 million or more than 600%. So, the company is certainly moving in the right direction. But investors will want a consistent track record of success before committing their capital to this one.

IDEX Stock: An Intriguing Yet Confusing Story

Ideanomics started its journey as a financial technology company called China Broadband in 2004 by McMahon. The company has undergone several name changes, and McMahon is no longer at the helm, having returned to his family business, World Wrestling Entertainment (NYSE:WWE).

In its current iteration, Ideanomics is a diversified conglomerate. However, its most exciting business segment is its electric vehicle division. Under the segment, the company provides “provides group purchasing discounts on commercial electric vehicles, EV batteries and electricity as well as financing and charging solutions.”

Instead of developing all these offerings in-house, the company has relied on acquisitions to build up its portfolio.

Some of these investments are interesting. Malaysia-based Treeletrik, for example, is an electric bike maker that wishes to serve the ASEAN region.

Major EV giants are focused on the European, Chinese and American markets. However, that doesn’t mean that there isn’t interest in other regions for EV products.

Most recently, Treeletrik agreed to supply 200,000 units of its electric motorbikes to Indonesia in a multi-year deal worth $274 million. Clearly, there is a thirst for these products in these underserved nations.

Apart from Treeletrik, I believe Wave is also an excellent addition to the company’s portfolio. Founded in 2011, the company is a wireless fleet charging solution company similar to ChargePoint Holdings (NYSE:CHPT).

This year, Ideanomics purchased the company in a cash and stock deal worth $50 million. An additional $30 million in payouts is possible based on revenue.

Revenues are projected to grow to $15 million by 2022 from approximately $7 million in 2020. It may not seem much. But one has to remember that this is a growing industry. In the long run, having Wave in its portfolio will pay dividends.

Dilution and Fundamentals Keep Potential Stockholders at Bay

One of the main issues Ideanomics will face moving forward is credibility, especially among value investors. For the full year 2020, revenues came in at $26.8 million, falling almost 40%  year over year.

According to the company, $40.7 million of last year’s revenue of 44.6 million was generated from a Digital Asset Management Services contract, which is not expected to yield any further revenue.

Meanwhile, the corporation is unprofitable. At the moment, only one analyst offers estimates on IDEX stock. Even according to the sole analyst, the company will remain unprofitable till 2024 at the earliest.

Shareholders will have to bear with substantial dilution in the meantime.

At the end of 2019, outstanding shares stood at 162 million. By the end of last year, the figure had increased to 419.3 million. While a red flag, the strategy is understandable.

Due to the Tesla (NASDAQ:TSLA)-induced EV frenzy, automakers in the space are having a field day, and so are day traders. Although there are positive beats, there is no reason why Ideanomics should be worth $1 billion. However, the stock market often doesn’t respect fundamentals.

But management is doing what most EV companies are doing at the moment. They are issuing massive amounts of equity and raising capital to fill up their war chest.

The positive thing is that IDEX is not sitting idly by with all the cash it has raised. It has acquired online real estate transaction services company Timios and Wave. It has invested in electric tractor manufacturer Solectrac, an Italian manufacturer of electric motorcycles Energica Motor, and Emilia-Romagna-based SILK EV, which is in a joint investment partnership with Chinese state-owned carmaker, FAW Group.

My Bottom Line

There are things to like about IDEX stock. Both as a fintech and EV play, one can understand why investors are excited about the company. Its operating model provides the company with the diversification most EV companies lack.

Plus, most EV companies are focusing on developing cars and trucks, while IDEX is carving out a niche for itself in tractors and motorcycles. The focus on ASEAN countries is also impressive.

However, these numbers need to translate into profits before one can comfortably look at IDEX stock as a buy-and-hold investment.

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.


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