Cryptos are making a comeback, and mining plays like SOS Limited (NYSE:SOS) are gaining ground as a result. But SOS stock is linked to two elements every investor is skeptical about these days, China and Bitcoin (CCC:BTC-USD).
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SOS is headquartered in Qingdao, China. It has recently started developing blockchain operations in the U.S. through a joint venture with partner Niagara Worldwide, a New Jersey limited liability company. Niagara Development will be responsible for providing up to 150MW of electricity for the mining rigs. Chinese authorities are clamping down heavily on cryptocurrency. So, this is definitely a welcome move.
SOS itself is a company that has a finger in every pie. It serves a variety of business lines, including but not restricted to rescue insurance and safety inspection, big data, and cloud computing services. Again, these are just some of the tasks the company performs.
However, there are a couple of things to note. Before its current incarnation, SOS was named China Rapid Finance, with a focus on peer-to-peer lending. Now, it is trying to position itself as an enterprise backed by US professionals on its board of directors with a crypto focus.
If you feel a bit lost by this point, then you are not alone.
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Considering it operates in China, we do not even know if the SOS rigs are operational. It has also changed auditors every year since 2019, and an auditor had previously expressed qualified opinions over its financial statements. Understandably, any accounting issues will raise alarm bells for investors after the Luckin Coffee (OTCMKTS:LKNCY) scandal.
Combine all these factors with excessive dilution, you have all the makings of a very risky stock.
No Clear Focus
One of the main issues SOS faces is the lack of strategic direction. It has pivoted from one form to another quite regularly in the last few years, leaving most people confused regarding its main focus.
The company originally filed to go public in 2015. It finally received SEC approval and a New York Stock Exchange listing in April of 2017. According to an initial business plan, it wanted to become a leader in the Chinese peer-to-peer consumer lending market.
By July 2020, the company became SOS. Along with the name change, the business shifted its focus from fintech to “emergency rescue services,” for many markets. Then in December 2020, it said it was looking to transform business operations through research and development efforts for companies in big data, cloud computing, the Internet of Things, blockchain, and artificial intelligence.
In January, the company announced it had spent $20 million on 15,645 crypto mining rigs from HY International Group New York. Following a Feb. 9 press release detailing receipt of 5,000 of those mining rigs ahead of schedule, shares skyrocketed from a low of $3.75 to an intraday peak of $15.88.
As I write this, shares are changing hands for $2.71 apiece. Retail traders made a lot of money through scalping profits on this one. But now that the dust has settled, investors have a better idea of where to place SOS stock. It is essentially a leveraged bet on the crypto market. If you do not want to buy BTC of ether outright, this becomes a relatively safer way of investing.
Matching up to the Competition
Bitcoin mining stocks have done well in the last year. Risk-tolerant investors are showing tremendous interest in these companies. But it’s important to know that there are several more established players out there than SOS, namely Riot Blockchain (NASDAQ:RIOT) and Marathon Digital Holdings (NASDAQ:MARA).
Both of these companies have a narrower focus compared to SOS stock, which makes them more of a pure play in my eyes. Granted, considering the industry in which these companies operate, none of the stocks reflect underlying fundamentals.
On the flip side, if you want a bit of diversification, then SOS seems like the better option. Also, the stock has fallen off a cliff. Shares once traded close to $16 a pop, and now they are changing hands for under $3. There are worse ways to spend that kind of money.
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SOS faces regulatory risks from both U.S. and Chinese authorities. But because SOS stock offers a less risky way to invest in cryptocurrency, you will continue to see it feature prominently in investor discussions. However, I would not want to dedicate a large portion of my portfolio to this one.
The speculative nature of the stock following the massive sell-off will make this an attractive play for risk-tolerant short-term retail traders. Yes, you can definitely scalp profits.
But it’s not a long-term investment at this point.
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On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.