Ideanomics Is Not Worth the Sum of Its Parts

Ideanomics (NASDAQ:IDEX) announced on March 31 in its earnings release presentation and its conference call that it now has $330 million in the bank. This is significant since at the end of 2020 it had just $165.7 million. So it has about doubled its cash through capital raises in three months. As a result, cash represents about 26% of IDEX stock. The company is now set to go on an acquisition binge.

a charging station for an electric vehicle (EV)
Source: Shutterstock

In fact, the CFO John McCarthy said as much on the conference call. He said that its cash is “a deep pool of capital for investment in our EV business.” Some of the cash will be used to “support … organic growth” and the rest will be used for “active M&A growth.”

Hodge Podge Mixture of Investments

In other words, expect IDEX stock to become an even more complicated hodge-podge assembly. It includes 100% ownership of EV (electric vehicle) companies, as well as non-EV finance businesses and partial stakes in companies.

For example, it looks like most of the real cash flow will come from its recently acquired Timios real-estate-title technology business. The company apparently makes $60 million in revenue, but management has yet to say how profitable it actually is. Nevertheless, one gets the impression they are counting on this $40 million investment to provide real cash flow to the group.

But what does this company have to do with electric vehicles? Not much, if anything. The company says it is part of a division of fintech and disruptive financial capital businesses. But that makes no sense to anyone thinking that this stock is an electric vehicle investment play.

This is going to make IDEX stock hard to value. Assuming most of the EV companies are relatively early-stage and don’t have good revenue and cash flow means their value lies in the future. That is probably why Ideanomics bought Timios, the estate title and escrow company. Its consistent cash flow will help smooth out the cash burn of the other companies.

There is nothing wrong with this, except that it makes the stock a mutt, so to speak, of EV and non-EV investments. And don’t forget, IDEX stock is not supposed to be a mutual fund or private equity fund. It is now a publicly held holding company — a conglomerate, if you will — but not a focused EV company.

What to Do With IDEX Stock

Expect the situation to get even more complicated as Ideanomics issues both shares and pays cash for full and partial stakes in more EV and non-EV companies. At best, the value of the holdings will appear clear over a two-year, or maybe three-year, period from now. That is likely when the company’s various holdings start producing significant revenue and/or cash flow.

Therefore, be prepared to hold onto IDEX stock for the long term. For the reasons I cited above, most of the analysts on Seeking Alpha that have written about IDEX stock in the last six months are either neutral or bearish.

For example, one analyst attempted to do a sum-of-the-parts (SOTP) analysis of IDEX stock. His conclusion was:

“Ideanomics could see the basket of investments and acquisitions valued at ~$600 million, about half of the current overall valuation, with Timios and WAVE the two largest contributors of value to the company.”

He also forecast that the company might produce another $600 million in value from its current assets. But that would simply bring the SOTP back up to its current $1.2 billion market value. That is not a ringing endorsement.

In short, I suspect that most value investors will want to wait until there is a clear bargain element. They will wait until IDEX stock falls or the market value compared to its underlying assets appears to offer a margin of safety. Right now, I don’t see that situation.

On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here. 


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