Is Ideanomics (NASDAQ:IDEX) stock a rising star in the EV (electric vehicle) sector? Don’t count on it. For starters, this company didn’t start off in the electric vehicle business. Instead, it’s a perennial penny stock, dabbling in a hot sector to gain attention (and capital) from investors.
What do I mean? Back in 2014, this company was known as YOU on Demand, a Chinese VOD (video-on-demand) company. First changing its name to Wecast Network, then Seven Stars Cloud, the company had morphed into a fintech play by 2018. Shortly after that, it adopted the Ideanomics name, and began another strategic shift: into the EV sector.
So far, none of this has helped to turn IDEX stock into a long-term compounder. Instead, shares have traded wildly, soaring as speculators rush in on the heels of a good press release. Post-hype, shares have usually fallen back to prior price levels.
Sure, the company may find success with its aggressive move into the fast-growing EV sector. But, keep in mind this company isn’t focusing on a particular niche of the industry. Instead, it’s throwing darts at a board, and seeing what sticks.
That is to say, this is more a gamble on EVs than a well-thought out investment. And, as investors realize it’s not on the cusp of something big, expect shares to tumble yet again.
Why IDEX Stock Is Not a Great EV Play
Ideanomics still operates its fintech division. But, lately, investors are most excited about its Mobile Energy Global division. Most of this unit consists of businesses adjacent to the sector, namely in sales and financing. For example, it recently inked a deal to purchase a fleet of EVs in China for deployment as rideshare vehicles.
Dabbling in multiple aspects of the EV services space, the Mobile Energy Global unit refers to its business model as “S2F2C,” or “sales to financing to charging.” Only time will tell whether this strategy pays off. Or, if it ends up being little more than a mouthful of corporate lingo.
But, besides operating in the services end of the EV industry, the company also has a piece of an electric vehicle manufacturer. That would be its 24% stake in e-tractor manufacturer Solectrac. Solectrac is still in very early stages (company was formed in 2019). But, there’s big potential here, as the EV wave moves beyond just passenger and commercial vehicles, and into the agricultural vehicle space.
In short, Ideanomics offers investors a sampler plate of EV exposure. But, while there is the possibility of tremendous growth in the coming years, is it actually likely? Looking at the company’s history of dabbling in “hot” industries, I wouldn’t hold my breath. Just like its failed forays in media and fintech, its dabbling in the EV sector will fall short of expectations.
Looking at Its Past, Expect History to Repeat Itself
Ideanomics may look like a unique opportunity. But, on closer inspection, it’s your garden variety penny stock. The constant changing of its corporate name, its fast pivoting between industries. These are all hallmarks of a company more in the business of hyping interest in its stock, rather than building a profitable, sustainable business.
On the other hand, unlike some other hype stocks, IDEX stock hasn’t “cashed the check” just yet. That is to say, exploit investor enthusiasm by raising capital via a dilutive stock offering. The company did register a $250 million shelf offering back in June. But, so far, it hasn’t announced an offering.
Yet, perhaps it’s too late to strike while the iron is hot with a direct offering. Ideanomics shares have pulled back since surging above $3 per share in the weeks following the U.S. Presidential election (which fueled a big rally in EV stocks). But, at around $2.36 per share, it may try to do so. Even at today’s prices, shares are far above prior trading levels (around $1 per share).
Keep in mind potential dilution isn’t the only concern here. Just like with other “also ran” EV plays, it’s speculation, not fundamentals, that’s driving price action. If and when stocks in this sector see a correction, weaker names like IDEX stock will see the largest declines.
Just like it has many times with this stock, history will repeat itself. After rallying on hype rather than substance, shares will pull back in a big way.
The Verdict? Avoid Ideanomics
Overall, I remain bullish on the EV sector’s long-term prospects. But, don’t take that to mean I’m bullish on all EV stocks. This isn’t a solid play on the future of electric vehicles. Instead, it’s a “wannabe” riding the coattails of stronger, better-capitalized rivals.
Given its high possibility of tumbling as investors realize it’s all sizzle and little steak, the verdict’s clear on IDEX stock: avoid.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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