The latest InvestorPlace contributor to write about SOS Ltd. (NYSE:SOS) is Tezcan Gecgil. She suggested on April 19 that the euphoria surrounding SOS stock is at an end.
That’s a polite way of saying the company’s latest endeavor mining cryptocurrencies is a poor choice, and most rational investors have lost interest in the company.
A couple of weeks earlier, SOS stock jumped 28% on news the company had become the latest short-squeeze target for WallStreetBets, the Reddit group that rose to fame during the first GameStop (NYSE:GME) movement in late January.
Reddit traders, convinced that SOS was the victim of unsubstantiated claims by short-seller Hindenburg Research, started beating the war drums to take out the short-sellers. It jumped to $15.88 a share before losing steam.
As of midday April 22, 2021, it’s trading at $4.15 a share.
My colleague stated that SOS hasn’t revealed annual financials since June 2020. That was for fiscal 2019. The 20-F for fiscal 2018 didn’t get filed until November 2019. It’s anyone’s guess when SOS will file the 20-F for fiscal 2020. It could be in June, or it could be November. Who knows?
In the meantime, I wouldn’t be surprised if another short-squeeze rally presents itself in the days and weeks ahead.
Whatever you do, don’t be fooled. This isn’t a $5 stock. Here’s why.
I Wasn’t a Fan of SOS Stock At $6.50
In March, I argued that SOS stock was the last investment you should make to benefit from blockchain technologies.
The March 30 purchase by accredited investors of 25 million ADS (American Depositary Shares) at $5 each raised $125 million for its cryptocurrency mining operations with the potential to raise an additional $125 million from warrants attached to the issue that has an exercise price of $5.
That all sounds very promising. After all, who in their right mind would invest $125 million in something that has no redeeming qualities? I sure wouldn’t.
But what precisely are these redeeming qualities?
According to InvestorPlace contributor Muslim Farooque, SOS’s crypto-miners are already delivering Bitcoin (CCC:BTC-USD) revenues. Approximately one-third of the 15,600 crypto-miners it’s acquired is in operation, with the remaining 10,600 ready to go soon.
Farooque points out that Riot Blockchain (NASDAQ:RIOT) only has 11,500 operating at the moment. Game, set and match for SOS.
While I respect my colleague’s opinion, I find it hard to believe that anyone would back a company that provides so little information about its financial situation. Its website leaves a lot to be desired.
It did, however, point me to its six-month numbers through June 30, 2020. On the top line, it had sales of $9.9 million, a gross profit of $79,000, and an operating loss of $2.6 million.
I guess that’s better than a kick in the head. But this equates to a $700 million market capitalization? I don’t think so. Annualize the $9.9 million and you get a price-to-sales ratio of 35.
Nuts.
The Bottom Line
The Reddit supporters like to talk about the democratization of investing. You know, the whole leveling of the playing field, and all that.
The problem is that it doesn’t address an obvious issue that retail investors face each day: the lack of information.
No, I’m not talking about Google. I’m talking about how the Securities and Exchange Commission (SEC) blindly lets companies such as SOS trade on the New York Stock Exchange. The information contained within its SEC filings is woefully inadequate for most retail investors to make an educated decision about investing in its stock.
I’ve talked many times about my vision for the democratization of investing. It involves being able to buy 25 stocks on 25 stock exchanges in 25 countries using a smartphone.
However, to make that happen, each of these countries must ensure that proper documentation is made available by public companies in that country to investors of all types.
Some would say they already do. If SOS is any example, I would disagree.
As for investing in SOS stock, Tezcan Gecgil pointed out no less than seven ETFs that made smarter bets on the blockchain and cryptocurrencies. I totally agree with her argument.
The short squeeze likely isn’t coming. Do not buy SOS stock based on wishful thinking. You will get burned.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
