Some companies develop a long-term, targeted strategy and stick to it. Others, take a shotgun approach to building a business and throw everything at the wall until something sticks. I’d argue investors in Ideanomics (NASDAQ:IDEX) stock are buying more of the latter.
As with during the “dot-com” boom of the late-90s, companies are taking advantage of hype across specific sectors to grow their market caps to insane levels.
This time around, it’s not necessarily adding “.com” to a company’s name, though, Ideanomics is the fourth iteration of the company’s corporate name in recent years.
Rather, companies are quickly shifting their focus to hyper-growth sectors, in the hopes of attracting investors.
Penny stocks like IDEX that were trading sub-$1 per share a year ago shot up to more than $5 per share earlier this year. Of course, a complete dislocation of valuations to fundamentals took hold during the meme stock mania we saw play out.
However, Ideanomics’ moves into everything from crypto to AI, fintech and now the EV space provide a dizzying account of a company that either appears to be a pump-and-dump scheme (as alleged by Hindenburg Research) or simply doesn’t know what it’s doing.
Here’s why I’m downright bearish on this stock, and have to side with the short-sellers on this one.
Hindenburg’s Analysis and IDEX Stock
On Jun. 25, 2020, Hindenburg published its short thesis on IDEX stock in the way it does best – via Twitter.
In a series of tweets, Hindenburg did what it does best and attempted to peel the layers of the onion away on this penny stock. At the time, IDEX stock had soared from pandemic-lows around $0.30 per share to the $2 level. Hindenburg suggested a move down toward the stock’s lows was likely.
Of course, that didn’t happen. Shares continued to move higher, to hit a high of $5.53 this year. However, I think Hindenburg is right on the money with its analysis of this stock.
Here are a few highlights from Hindenburg’s deep dive into this stock:
- Since 2015, IDEX has had 6 CEOs, 6 CFOs, 4 company names, and 10 board members leave.
- The company’s June 9 press release appears to be rife with photoshopped images. These photos predate the company’s EV sales center launch by approximately two years.
- Five of Ideanomics’ customers were called and reportedly had never heard of the company.
- The company’s stream of press releases in previous years over the past five years delegitimize this company. Hindenburg views IDEX stock as a pump-and-dump scheme “resulting in major shareholder losses or regulatory intervention.”
Indeed, I think the last point is the one investors ought to consider with this stock.
Fellow InvestorPlace contributor Vince Martin did a great job highlighting the history of Ideanomics in a recent piece. I’d invite readers to revisit this article for more information on the company.
However, the bottom line is, it’s hard to trust a company that announces so many acquisitions followed by write-downs over time.
This is a stock that’s always trying to become the train that’s about to leave the station. This year, it appears some suckers are jumping aboard.
Even if we were to assume for a second that everything Ideanomics is telling you is true, which I don’t think we can, IDEX stock is trading at a ridiculous valuation.
This is a stock that’s trading at more than 45-times sales, with declining sales over the past three years.
There’s no justification for this. In fact, even in hyper-growth sectors of the market with established companies this would be a difficult valuation to justify today. And that’s saying something.
IDEX stock happens to make the list of my top stocks to avoid. I’d caution readers to avoid this company by every means necessary. It’s not worth it.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.