- Although tied to an exciting industry, SOS Limited (SOS) stock is suffering heavy losses.
- The vagaries of the company and geopolitical instability make this a tough call.
- Only gamblers should apply and even then, it is highly questionable.
Sometimes, certain names just don’t translate well overseas, as Chinese data mining specialist SOS Limited (NYSE:SOS) is finding out, becoming exactly what its brand name suggests. SOS stock is sending out a distress signal, but it is not clear if investors will bail it out. Therefore, anybody that is not an extreme gambler should probably steer clear — and even then, it is a tough call.
Following the final day of trading for March, SOS stock ended up cratering over 27%. That put its year-to-date loss at over 38%, a punishing blow considering that the security appeared on the cusp of breaking even. Thanks to its cryptocurrency-mining arm along with the underlying sector’s recent upswing in valuation, circumstances appeared favorable for SOS for a moment.
Unfortunately, that moment faded quite quickly. While some daring investors may view the selloff as a once-in-a-blue-moon buying opportunity, I’ve got to imagine that the majority will be turned off. Why? Over the trailing year, SOS stock has plummeted 88.9%. I don’t care what the underlying business is; stocks don’t just drop that much without a reason.
Compounding matters. As my colleague Stavros Georgiadis mentioned, the New York Stock Exchange has taken note. The exchange notified the crypto miner that SOS stock has fallen below compliance standards. Therefore, the security is at great risk of a delisting unless the underlying fundamentals change for the better — and right quick.
Will it? I’m afraid I’m skeptical.
| SOS | SOS Limited | $0.53 |
Why Did SOS Stock Plunge into the Abyss?
As InvestorPlace’s own Samuel O’Brient pointed out, SOS is conducting a “last-ditch effort to remain on a major exchange.” However, anything that management does with SOS stock is likely to be “too little too late.”
Generally speaking, the concept that investments like SOS stock track or correlate with the crypto sector is questionable. Some firms do correlate with certain benchmark virtual currencies. But the problem with that concept is that crypto mining firms are businesses. Other factors exist that could decouple the underlying security from the crypto sector, for better or for worse.
For SOS stock specifically, the decoupling is inarguably for the worse. Looking at the company’s financials, it is not clear that SOS has benefitted from the dramatic rise in crypto valuations. This ambiguity draws more attention to some of the negative rumors that have long plagued the organization.
For instance, Georgiadis noted that SOS management is vague about where the company conducts its mining operations. That is a significant piece of information considering that China is cracking down on crypto-mining endeavors. So, if the leadership team is pivoting elsewhere, I think investors should know where it is pivoting to.
Little info on that front makes SOS stock seem sketchy.
Geopolitical Stability Concerns Rise Again
Over the final weekend of March and leading up to April, many geopolitical observers expressed cautious hope that peace talks between Russia and Ukraine would yield productive results, possibly a framework for ending the violence. Still, a risk existed that the Kremlin was merely using the prospect of dialogue as a military tactic.
Based on continued attacks in Ukraine, it appears that the skeptical outlook was the correct one.
Of course, the flashpoint in eastern Europe doesn’t directly involve SOS stock. However, the fact that such a paradigm-shattering move occurred destabilized global markets, including the crypto sector. True, decentralized financial protocols offered a cynical solution to those affected by the crisis. But that wasn’t enough to bolster the entire digital asset arena.
As it turns out, crypto investors aren’t that different from investors of traditional assets. While the blockchain ecosystem is much more volatile than stocks, participants prefer some measure of predictability. The eruption of violence in Europe was about as unpredictable of an event as you can get, thus hurting both cryptos and SOS stock.
Therefore, if the fighting continues — and that is where the signs seem to be pointed — I can’t really see this being helpful for the crypto-mining industry. Both the business of mining and the valuation of the cryptos themselves are facing huge unknowns.
A Market Slot Machine
If representatives of SOS criticize this take, it wouldn’t be the first time. Admittedly, though, I would hope it is the last time. Crypto mining is an intriguing enterprise overall. However, it is incredibly risky and participants must have their financial house in order.
As many analysts have demonstrated, the business underlying SOS stock is opaque. With so many questions surrounding it, SOS is really a slot machine — one with a low probability of success. Most folks will do well to avoid it.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Josh Enomoto 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.
