Dogged by accusations of deceptive business practices and tying itself to a market notorious for extreme volatility, cryptocurrency mining firm SOS (NYSE:SOS) is no longer sending out a distress signal — at least not for the first session of May. During a time when the major U.S. equity indices extended their losses from the prior week, SOS stock enjoyed quite the opposite framework, soaring over 40% for the day. Still, the natural question is, can traders trust this surge of bullishness.
On paper, it would seem foolish not to. According to the company’s press release, revenue for 2021 jumped to $357.8 million, a gargantuan increase of 612% against 2020’s tally. According to management, the crypto-mining specialist’s “robust growth of revenue demonstrated the strong and effective execution of the Company’s strategy, mainly due to rapid market expansion and the addition of crypto-mining and commodity trading operations. Growth was driven by taking advantage of our block-chain expertise.”
In addition, it’s fair to point out that SOS stock wasn’t just driven by crypto-based enthusiasm. “Our traditional business of insurance marketing increased 34% to $65.9 million year over year, as a result of rapid market expansion from regional to national customer base in China.” Despite the positive implications of a diverse business profile, however, viability concerns remain.
In particular, the remarkable sales growth undergirding SOS stock wasn’t entirely unexpected. The virtual currency market was a revelation throughout much of 2021, with even crypto skeptics forced to recognize the power and influence of digital assets. However, that came at a cost; specifically operating costs that ballooned from $37.2 million in 2020 to nearly $337 million in 2021.
As a result, while revenue expanded massively on a year-over-year basis, gross profit only increased 62% during the same period. Moving forward, then, the extreme volatility of the crypto space suggests that future growth opportunities for SOS stock may be limited.
It’s not just a matter of hating on the underlying company. Rather, the crypto market has been taking a beating due to the volatile trading of the broader equities sector. This time around, rising fears of a recession — such as major technology firms disclosing terrible earnings reports and laying off their workers — has many people hitting the sidelines regarding risk-on assets.
Therefore, as intriguing as SOS stock recently was, unless you’re a battle-hardened gambler, you should probably stay away.
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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.