No doubt, there’s a lot of questions about investing in SOS Limited (NYSE:SOS) stock.
The Chinese company calls itself an “emerging blockchain-based and big data-driven marketing and solutions provider as well as cryptocurrency mining operator.” That’s a lot to pack in any mission statement.
SOS says it’s coming off an outstanding year with financial results that exceeded expectations. It’s making a series of moves to scale up its cryptocurrency-mining operations and expects even better results in 2021.
There are others, however, that suggest that SOS isn’t what it says it is. A noted short seller says SOS is just making up key details of its story. And the company has been less than transparent about its financials.
On the surface, companies like SOS can be a profitable way to play the crypto market without investing in a specific coin. That’s what makes SOS so interesting.
But regardless of what side of the coin you’re looking at with SOS stock, it behooves investors to take a close look at this crypto-mining play.
An Up and Down Ride
SOS was safely a penny stock until February, when the company announced it started mining cryptocurrencies. It also announced it was starting businesses connected to blockchain security, insurance and banking. The stock rose to nearly $16.
But then allegations by Hindenberg Research — which acknowledged having a short stake in SOS stock — alleged that the company was committing fraud.
Hindenberg said that the company’s office and headquarters were merely a hotel. It alleged that SOS falsified the background of a key employee. And it also raised doubts that SOS owned cryptocurrency mining rigs at all.
SOS fought back against the allegations, calling it “a misleading and fraudulent short report.” But it wasn’t enough to keep the SOS stock price from collapsing again.
SOS Stock at a Glance
In May, SOS announced full-year financial results for 2020. Revenue was posted at $50.3 million, which was an increase of 333.6% from 2019. Most of the revenue came from the company’s insurance marketing business, which was $49.2 million.
SOS says it banked a gross profit of $13 million, which was an increase of 513.5% from 2019. Net profit was $4.4 million, or 1.35 cents per share. That was up slightly from 2019, when the company posted a net income of $1.5 million, or 2.5 cents per share.
CEO Yandai Wang said he was pleased with the results:
“We will continue to leverage our data mining and analysis platforms, with a goal of developing a robust pipeline for insurance marketing and -related service products. With a strong financial position, the entire SOS team is focused on the execution and delivery of the Company’s strategic growth plan in marketing data business, Blockchain-based insurance and security management business, and cryptocurrency mining with the goal of significantly increasing shareholder value.”
But perhaps more notably, SOS says it is continuing to make some significant investments in growing its cryptocurrency mining capabilities.
Just this spring, SOS says it:
- Put into service 6,039 crypto mining rigs that it received over in April for the mining of Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD).
- Received money service business licenses in the United States and Canada, which will allow it to act as a foreign exchange dealer and money transfer agent.
- Entered into a non-binding letter of intent to buy majority equity interests in three U.S. power plants. The goal is to help SOS expand its crypto-mining operations in the U.S.
Obviously, SOS is investing heavily to become a player in the crypto-mining space.
The Bottom Line
Cryptocurrencies have had a rocky run as of late, although they are showing some signs of life. But if you believe in the long-term future of cryptos, then you should consider SOS as a potential play.
Few things, if any, are surefire guarantees in investing, and the short report from Hindenberg casts a shadow on SOS stock.
SOS hasn’t yet shown earnings from its cryptocurrency-mining business, but that should come soon. What kind of profit the crypto-mining unit provides will be key for SOS stock moving forward.
On the date of publication, Louis Navellier did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article held LONG positions in BTC and ETH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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