Stocks to sell

SOS Limited Has Too Many Red Flags for Investors

Okay, I’ll admit it. I’ve flip-flopped on SOS Limited (NYSE:SOS). In March, I recommended sitting on the sidelines. Then in May, I advised gradually accumulating shares of SOS stock.

Source: Mark Agnor / Shutterstock.com

Between the flipping and the flopping, I noticed some strange things about SOS Limited. As we’ll see, my colleagues at InvestorPlace also detected red flags about this company — and prior to that, so did a well-known short seller.

Generally speaking, I’m a fan of digital assets like Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD). Moreover, I feel that there could be a bright future for some cryptocurrency miners.

However, I’m starting to feel uneasy about SOS Limited. At best, it’s a company to invest a very small amount of money in — if you’re a speculator who wouldn’t flinch at a 100% loss.

A Closer Look at SOS Stock

In early 2021, a number of stocks became meme stocks as Reddit users targeted certain assets for massive short squeezes.

I can’t prove this, but SOS stock might have been one of those meme stocks.

Otherwise, it would be difficult to explain the run-up from less than $1.40 in December 2020 to $15.88 in February.

There wasn’t any company-specific news which would justify a rally of that magnitude.

On the other hand, Bitcoin and Ethereum prices both rallied in February. But then, those crypto coins only retreated slightly in the back half of February, while SOS stock completely tanked.

The point here is that, if you want to get perfect exposure to cryptocurrency price movements, it’s probably best just to buy the tokens. The fact is, crypto mining stocks won’t always track Bitcoin and Ethereum.

In any case, after topping out in mid-February, SOS stock commenced a painful multi-month decline. By late August, it was only slightly above $2.50.

The Hindenburg Attack

Hindenburg Research is known for issuing scathing reports and, in some instances, initiating short positions.

In March, InvestorPlace contributor Chris MacDonald reported that Hindenburg took a strongly bearish position against SOS Limited.

As MacDonald observed, Hindenburg “accused SOS of misleading investors with false announcements, and highlighted discrepancies related to the company’s operations.”

That’s pretty scary, if it’s true. And here’s where it gets really weird: apparently, Hindenburg attempted to visit the address disclosed in SOS Limited’s filings but only found a hotel at that address.

This might get some cautious investors thinking: is it possible that, for all practical purposes, the company doesn’t even exist?

Hindenburg has admitted that it had a short position against SOS Limited, while calling the company “an obvious China-based shell game.”

The firm also asserted that “SOS is a $0 and has significant regulatory risk.” Ouch!

Telltale Signs of a Non-Company

As I mentioned earlier, there are other InvestorPlace contributors besides myself, who have detected some bright red flags.

Here’s a quick rundown:

  • Stavros Georgiadis observed SOS Limited’s unfocused business model, which includes not only crypto mining but also artificial intelligence technology; satellite communications; health advice; financial bailouts; and even emergency medical, road and safety rescue.
  • Dana Blankenhorn noted that SOS Limited “has not delivered financial results for either quarter in 2021.” Moreover, while reminding us that “China’s government shut down the miners months ago,” Blankenhorn went so far as to conclude that SOS “may not even be operating.”
  • Also citing China’s regulatory crackdown, Mark R. Hake suspects that the company “has ceased its mining operations.”
  • Both Blankenhorn and Alex Sirois suggested that SOS Limited’s word jumble of a website is less than sufficiently opaque.

To all of that, we can add SOS’s sub-optimal response to the Hindenburg allegations.

Rather than defend itself with countervailing evidence, the company mainly just attacked Hindenburg for perceived market manipulation.

The Bottom Line on SOS Stock

I won’t go all the way and declare outright that SOS Limited has no meaningful operations, crypto-focused or otherwise.

Instead, I’ve presented the mounting evidence that the company might not be all that it purports to be.

The overall impression, I believe, is worrisome. There are better ways to invest in the blockchain revolution, so please feel free to park your capital elsewhere.

On the date of publication, David Moadel 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.

David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.