SOS (NYSE:SOS) provides cloud-based emergency services to individuals and businesses. The company has also diversified into cryptocurrency mining and has been in the limelight for the same. But SOS stock hasn’t had a great run lately.
SOS stock has been volatile for the past three months. It was $1.44 at the beginning of the year and hit $15.88 in mid-February. However, the stock has pulled back from this high and is currently changing hands at around $4.80.
The stock has consistently gone down since 2017. It once exchanged hands at a high of $113 in 2017 and went as low as $0.83 in 2020.
Considering the recent volatility, SOS stock looks risky and is best avoided at this stage. There are red flags with SOS stock and here’s why you should watch out.
SOS Stock: High Risk, High Dilution
What do you make of a stock that skyrockets one day and pulls back the next? Short-term events like Reddit interest can only push the stock higher for a short moment. It looks like investors are placing a lot of faith in the recent upsurge but it is a hype that will cool down any moment.
Let’s take a look at the history of the company. Established in 2001 as a provider of consumer loans, the company created a marketplace for lending. It exited the business in 2018 and ventured into crypto mining.
As a lender, the company could not make profits and the balance sheet was not impressive. It made a well-timed move into the crypto industry but the ride has not been smooth.
In 2019, the company suffered a loss of $10 million and the revenue declined by 38% year over year. It does not have enough liquidity and is suffering heavy losses. The company has pushed funds for Bitcoin (CCC:BTC-USD) mining by issuing stock and this has led to heavy share dilution which is not beneficial for shareholders.
SOS raised about $125 million in its most recent round. As the company continues to dilute shares, it should at the very least justify its worth to the shareholders. Investors are paying a premium for what looks to be a gamble at best on the part of SOS while the company works toward building a digital exchange asset at the cost of stock dilution.
For now, one can only hope that it generates enough revenue in the future. The pace at which the company is diluting shares is alarming and investors should see it as a red flag. Analysts also do not offer a rating for SOS stock.
The Bottom Line on SOS
Even if we do not consider the fundamentals of the company, it is highly risky to invest in crypto-related companies at this stage. There has been a massive rise in bitcoin prices, but a crash would be catastrophic for a lot of these highly leveraged companies.
To succeed in crypto mining, a company needs to make a huge investment. This where SOS lacks. It has raised funds six times since December but a business cannot be run by issuing equity whenever it wants more cash.
With a market cap of $963 million, the stock is overvalued. How do you justify a high market cap with a decline in revenue and a loss? Even if you decide to ignore the risks of dilution and crypto mining, the valuation looks stretched.
There is only speculation we are dealing with right now. Considering the lack of interest by Wall Street analysts, the stock is best avoided.
Until the company releases its 10Q for the March-ended quarter, we will not have the exact figures to gain perspective about the future. Considering the risks associated with SOS stock, it does not look attractive. The stock looks highly volatile and may not generate returns in the near future.
Avoid the stock at all costs.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article.