SOS Limited (NYSE:SOS) stock combines two themes Wall Street investors hate most right now: Bitcoin (CCC:BTC-USD) mining and China.
SOS is a Chinese Bitcoin miner.
But wait, there’s more. SOS is a Chinese Bitcoin miner that has not delivered financial results for either quarter in 2021. It may not even be operating. China’s government shut down the miners months ago.
Are you intrigued?
What They Say They Are
The SOS website doesn’t talk about the Bitcoin mining.
There’s a mention of blockchain. There’s also a “cloud alliance” with dozens of Chinese corporate logos, and a variety of “rescue services” offered by subscription. It’s hard to tell whether this is AAA or an insurance company.
The short sellers at Hindenburg Research have done some work on SOS and describe it as a shell company, formerly called China Rapid Finance. The claimed headquarters is a hotel, they say, the “hiring” of a crypto expert is a link to another company. According to Hindenburg, the stock is worthless.
Despite this, Investors Observer recently gave SOS a bullish rating. This is based on recent price action, the site says, not the underlying business. A writer at Stocks Register also liked the name, but this too is all the numbers. There’s no mention of what SOS does.
Still, the stock did have a vogue. In February, when China and Bitcoin mining were both hot topics, SOS briefly closed at $12.80 per share, which would have given it a market cap of about $2 billion. It trades now at $3.18, a market cap of $595 million. Our Louis Navellier has written favorably about it as a way to get leveraged exposure to crypto, and I hate to disagree with him. But …
Why We Distrust It
Our Mark Hake writes that SOS stock is worth only the value of its cash. He found its cash value to be about 56 to 70 cents per share.
Stavros Georgiadis also saw the red flags. He considers SOS too risky to own. He calls it a pure meme stock, with no “there” there. Its response to the Hindenburg Research was not to defend itself, but to attack Hindenburg for market manipulation.
Alex Sirois also came away from his assignment looking at SOS confused. The company recently updated its Web site, he writes, but the word salad on it is the same as before. SOS is being lumped in with U.S.-based miners like Marathon Digital Holdings (NASDAQ:MARA), which I’ve written about, and Riot Blockchain (NASDAQ:RIOT), which I haven’t.
The main red flag is, of course, China. Americans love to dump on China right now, calling it authoritarian and Communist. It is authoritarian, in that the government doesn’t have to respect human rights and can act in an arbitrary manner. But it’s not communist. If anything, it’s living in our 19th century. The government is desperately trying to get its arms around the capitalist greed it has unleashed, especially in the tech sector.
The Bottom Line on SOS Stock
If China’s tech economy is the Wild West, then SOS is Deadwood.
You remember the show, which ran over 15 years ago on HBO. It was set on the lawless frontier of South Dakota’s Black Hills during the 1870s. It’s filled with criminality, and an Army officer desperately trying to make sense of the place.
That’s why I avoid all but the biggest Chinese companies, like JD.com (NASDAQ:JD), Alibaba Group Holding (NASDAQ:BABA) and Baidu (NASDAQ:BIDU). That’s why many Americans suggest you avoid even them. Based on their fundamentals, they’re all undervalued on U.S. markets.
But a Chinese Bitcoin miner with a dodgy past, an opaque present, and an uncertain future? Why would you even think of it?
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On the date of publication, Dana Blankenhorn held long positions in JD and BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.