SOS (NYSE:SOS), which is a Chinese Bitcoin (CCC:BTC-USD) miner, has suddenly popped up on the radar of many investors, including many redditors. Since December, SOS stock went from $1.26 to opening at $15.01 on March 17. Although as the markets have cooled down, so has this stock. SOS is now trading at $4.99.
The company got its start back in 2001, and since then there have been several pivots. The initial focus was on being a provider of credit analytics. This resulted in the creation of a lending marketplace. However, because of regulatory changes in China, the company exited this business in 2018.
The management team then pivoted into crypto mining. After all, SOS had extensive experience with sophisticated IT systems but also had formed various relationships with financial services companies.
So with the shares off their highs, does it make sense to consider a purchase? Well, I actually think investors should be cautious of SOS stock. Here’s why:
The Red Flags
There have been several research reports that have come out on SOS stock. Unfortunately, they are far from positive.
Note that Culper Research put out analysis that the company is alleged to be a fraud. Then there was a more detailed report from Hindenburg Research.
Now it’s true that both of these firms engage in short selling. But then again, they are known to do deep research. Hey, this is necessary because of the inherent risks of a short squeeze, as seen with companies like GameStop (NYSE:GME) and AMC (NYSE:AMC).
Just look at the report from Hindenburg Research. The firm’s analysts visited SOS’s headquarters, and it was apparently a hotel! Next, they found that the company allegedly did a copy-and-paste of the images and press releases from rivals.
As should be no surprise, SOS did refute the allegations. In a press release, the company called these claims “distorted, misleading, and unsubstantiated.”
Yet there are some other nagging issues. For example, there is skepticism about the company’s announcement that it deployed 5,000 mining units and that there will be more in the offing. But there appears to be shortages in the industry, as demand has soared.
In fact, the deal for these rigs – which was with HY International — may have involved a related-party transaction.
Bottom Line On SOS Stock
The prospects for Bitcoin continue to look bright.
Tesla’s (NASDAQ:TSLA) $1.5 billion acquisition of bitcoin was definitely a big catalyst. But there has also been wider adoption from traditional financial services organizations. Consider that Mastercard (NYSE:MA) is preparing to support various cryptocurrencies on its global network. Then there is the Bank of New York Mellon (NYSE:BK), which is the oldest U.S. bank, that is looking to provide transfer services.
In the meantime, it looks like asset managers and hedge funds are trying to get exposure to crypto. Some of the world’s top investors – like Paul Tudor Jones, Bill Miller and Stanley Druckenmiller – consider digital currencies to be a good way to hedge against inflation. Think of it as a modern-day version of gold.
So given all this momentum, there could be more gains for SOS stock.
But again, there are a myriad of red flags. And besides, there are other options to play crypto, like Riot Blockchain (NASDAQ:RIOT) and Marathon Patent Group (NASDAQ:MARA). Or if you don’t want to worry about potential company risks, you can just buy cryptocurrencies directly, which is fairly easy using apps like Square (NYSE:SQ), Robinhood and PayPal (NASDAQ:PYPL).
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.