SOS Stock Is Likely To Come Under More Pressure

SOS Limited (NYSE:SOS) stock has had a dizzying ride so far in the year. SOS ended 2020 at $1.48. On Feb. 17, it hit a multi-year high of $15.88. Now shares are down to $4.15. Although there have been daily short-term rallies in the stock in recent days, they have all fizzled out. 

yellow tape with the words caution on it
Source: Shutterstock

Now market participants wonder what might be next for SOS. Potential investors should not buy SOS stock as it is pure speculation at this point. Instead, they could use their hard-earned capital to invest in other shares that have verifiable businesses with high-growth potential.

Let’s see why.

Why SOS Stock Has Declined

Momentum stocks like SOS stock receive significant daily attention. But amid such short-term choppiness, retail investors do not always find it easy to get the whole story behind a company. China-based SOS regards itself as a cryptocurrency miner. Therefore, for most crypto miners, their share prices have become somewhat of a proxy for these digital assets.

Bitcoin(CCC:BTC-USD), Ethereum (CCC:ETH-USD) and other cryptocurrencies have seen new record highs. For instance, year-to-date (YTD), BTC and ETH have gained over 90% and 195%. When cryptos rise, miners rise; when cryptos fall, miners fall. Therefore, anyone investing in SOS stock would especially need to keep a close eye on the price of Bitcoin. 

However, there is more to the roller-coaster moves in SOS stock. The rapid decline in the share price has mainly happened as a result of two separate reports by Hindenburg Research and Culper Research. These firms now have short positions in the shares.

Thus, the market has been abuzz with these reports, which “find the Company’s claims regarding its supposed cryptocurrency mining purchases and acquisitions to be extremely problematic, if not fabricated entirely.” They clearly state that they believe SOS shares are “worthless.”

As a result of these reports, SOS stock is now on the short-squeeze list of Reddit traders, causing wild short-term swings. But potential investors need to look beyond these daily moves.

Understanding What SOS Does

According to a March SEC filing, SOS was set up in Delaware in July 2004 as China Risk Finance LLC.  Initially, it provided credit analytics services. The American Depositary Shares (ADS) commenced trading in April 2017 under the symbol XRF. In late 2018, the group started to transition the business to other industries.

The SEC report also cites the acquisition of a British Virgin Islands company, Yong Bao Two Limited (YBT), a move that was finalized in May 2020. The second half of 2020 has been busy for the company. The management decided to cease their legacy peer-to-peer lending business and switch their focus to high-tech services including marketing data, technology and solutions for insurance companies and emergency rescue services in China. The stock ticker was also changed to SOS.

SOS stock’s current business is quite varied. It ranges from data mining and analysis to high-tech services. There’s also an SOS cloud emergency rescue service software as a service (SaaS) platform, a data warehouse with 120 million active customer records, and finally a crypto mining business, according to the filing.

On April 12, SOS announced to have entered into a non-binding letter of intent to “acquire the majority of the equity interests of three U.S.-based power plants for its planned crypto-mining operations in North America.” That move is consistent with management’s anticipation to grow its crypto mining operations. 

However, SOS does not yet have any revenue from crypto mining. Therefore, it is not possible to verify the extent and the viability of operations until the company releases more information and earnings reports.

The Bottom Line on SOS Stock

In its early days as China Rapid Finance, SOS operated a consumer lending marketplace. Then came the change of name and the move into an insurance business. And as the price of cryptocurrencies took off, management added crypto mining to its line of business.

We should not be surprised if non-fungible tokens (NFTs) also get added to the list of businesses in the coming months.

Given its changing operations and questionable revenue propositions, I find SOS stock a risky proposition at this point. We have not had an earnings release since June 2020, when it announced full-year 2019 results. In 2019, revenue declined by 38% from the previous year and net loss was close to $10 million. Those investors who hold paper profits in SOS stock right now might want to take money off the table.

At this point, the business does not deserve any hard-earned investment capital. However, if you are speculator and day trader, you might understandably want to ride the wave as long as you are within your well-defined risk parameters.

Readers interested in the fintech, blockchain or cryptocurrency space might also consider investing in a relevant exchange-traded fund (ETF). Examples include the Amplify Transformational Data Sharing ETF (NYSEARCA:BLOK), the ARK Fintech Innovation ETF (NYSEARCA:ARKF), the Capital Link NextGen Protocol ETF (NYSEARCA:KOIN), the Grayscale Bitcoin Trust (OTCMKTS:GBTC), the Grayscale Ethereum Trust  (OTCMKTS:ETHE), the First Trust Indxx Innovative Transaction & Process ETF (NASDAQ:LEGR), and the Siren Nasdaq NexGen Economy ETF (NASDAQ:BLCN).

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

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.

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