In mid-June, Ideanomics (NASDAQ:IDEX) announced that it would acquire the remaining stake in electric tractor maker Solectrac that it didn’t already own. Despite the news, IDEX stock has continued to tread water between $2.50 and $3.
In fact, since it first fell below $3 in 2021 in early March, its stock has closed between $2.50 and $3 inclusive on 56 of 99 trading days through July 26. There were 30 days where it closed above $3 and 13 below $2.50.
IDEX stock has closed below $3 for more than two thirds of the trading days since the beginning of March. It was as high as $5.53 in early February.
You would think acquiring 100% of Solectrac would get investors excited about the company. It hasn’t. Here’s why.
The Price Paid for Solectrac
The June 11 agreement to acquire the 78.6% of Solectrac that it didn’t already own cost it $18.1 million in cash. That values the entire business at $23 million.
In addition to the money upfront, Solectrac management has three earnouts that could cost Ideanomics an additional $6 million between 2021 and 2023. In addition, retention bonuses could add $3 million to the ultimate purchase price, bringing the total to a little over $27 million.
Ideanomics has also agreed to provide $12 million in growth capital for Solectrac to invest in its business over the next three years.
According to an offering memorandum from 2020, Solectrac had 2019 revenue of $83,258. That was up from $71,910 in 2018 and $10,567 in 2017. No revenues have been given by Ideanomics for 2020, as far as I can tell.
The earnout mentions targets of $6.03 million in 2021, $16.23 million in 2022, and $27.72 million in 2023. If those numbers are remotely achievable, Ideanomics got themselves one heck of a bargain.
However, to leap from $83,258 in 2019 to $6 million in 2021 seems like a very tall order. So I would caution investors not to take much stock in these numbers. My guess would be $1 million in 2021 revenue, but even that’s being awfully generous.
On July 1, Ideanomics announced that Mani Iyer, a seasoned veteran of the agricultural and construction industries — he was previously Chief Executive Officer of Mahindra Agriculture Americas — would take over as Chief Executive Officer of Soletrac, with founder Steve Heckeroth becoming Chairman.
Iyer now has the task of scaling the Solectrac business. It will be interesting to see how he fares. Solectrac remains very much an expensive startup, but it’s one that Ideanomics can afford, given it had $280 million in net cash on its balance sheet at the end of March.
IDEX Stock Speculation
When I last wrote about Ideanomics in early April, I suggested that its stock remained a risky proposition. That was largely because it continued to go down two roads — one as a holding company and one as an operator — making it very difficult for investors to get comfortable with its growth strategy.
As I said at the time, it bought itself a profitable revenue stream with its acquisition of Timios, a real estate technology platform. We’ll know how profitable in mid-August when it reports its Q2 2021 earnings.
InvestorPlace contributor Josh Enomoto discussed the electric tractor angle in late June. He ultimately concluded that Solectrac, while possessing promising technology, won’t be able to displace diesel tractors anytime soon, which means Ideanomics is about to bleed a lot of red ink on its latest adventure.
There is no denying that Ideanomics has many moving parts, many of which could end up as nothing more than aspirational ideas.
I don’t believe IDEX stock is going anywhere until after the company announces its second-quarter results and investors get a better idea of how its various businesses are performing.
There is no question that IDEX stock is a speculative investment. However, I continue to believe that buying its stock in the $2 range, preferably at or below $2.50, will give you your best shot at long-term profits.
But you’ve got to be patient. Ideanomics is unlikely to be an overnight success.
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On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.