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It was not long ago that SOS Limited (NYSE:SOS) mined its first Bitcoin (CCC:BTC-USD) on Feb. 24. Since then, the cryptocurrency mining firm announced successful installations. Investors may expect the hardware reconfigurations will justify the jump in SOS stock.
Source: Mark Agnor / Shutterstock.com
Last month, SOS shares peaked at an intraday high of $15.88. The stock fell off a cliff in the days that followed. Its chances of revisiting those short-lived highs are very low.
Investors could buy a Bitcoin exchange-traded fund or Riot Blockchain (NASDAQ:RIOT) instead. So, what does SOS have to offer?
Mining Rigs May Help SOS Stock
On March 15, SOS announced that it successfully installed a second fleet of 5,000 cryptocurrency mining rigs. It can now process an average of 353 penta-hashes per second (PH/s) of Bitcoin. It has the computing power to mine 707 giga-hashes per second of Ether, the cryptocurrency of Ethereum (CCC:ETH-USD).
Investors buying SOS shares or any Bitcoin-related stock would need to check the prices of Ether and Bitcoin daily. The revenue potential of companies like SOS depends on them.
SOS forecasts the production of at least 41 Bitcoins and 909 ETH in the first quarter. Assuming it faces no downtime or hardware failures, the output is easily achievable. As cryptocurrency values continue rising, expect the company to add hardware to its mining farm, increasing its revenue.
On Feb. 24, SOS announced a “big data star enterprise” award by Gui’an New District Government. The reward does not sound material. Guiyang had a population of 730,000 in 2016.
Risks
Cryptocurrency stock speculating is already risky. Fluctuations in its value will move the SOS stock price. Furthermore, a Hindenburg Research report against SOS is negative. The short seller said that:
We are short $SOS, which we believe to be an obvious China-based shell game reanimating the corpse of a former China-based company that earlier imploded 90% from its highs. We think SOS is a $0 and has significant regulatory risk.
SOS posted news releases to rebuke the bearish claims. It posted videos on its website in which it gave a tour of its crypto mining center.
Hindenburg has a good track record on its bearish bets. For example, it called Nikola (NASDAQ:NKLA) a fraud. Since the bet, NKLA stock peaked at $93.99 last June 2020 and traded in the teens recently. SOS is a China-based company, too. Luckin Coffee (OTCMKTS:LKNCY) filed for bankruptcy in February. Before that, the company’s executives orchestrated fake sales reports to lift the stock in 2020.
Investors cannot rely on Hindenburg’s research. Some call the firm run by criminals, accused of collusion.
Opportunity
Setting up 15,000 in expected rigs would turn SOS into the biggest crypto miner. Investors who missed out on Riot Blockchain or Marathon Digital Holdings (NASDAQ:MARA) cannot dismiss the mining prospects from SOS.
Conversely, SOS is based in China. As mentioned above, the region had its fair share of the fraudulent firm. Yet the country cannot be singled out. Instead, investors will have to forecast the Bitcoin revenue potential of SOS in 2021.
Investors have many Bitcoin mining options besides holding SOS shares. Hut 8 Mining (OTCMKTS:HUTMF) reportedly mined 3,012 Bitcoins as of Feb. 17. At the time, the Bitcoin was worth CAD 186 million. Today, HUTMF stock is up sharply, thanks to the surge in the value of Bitcoin.
According to simplywall.st, SOS fails on almost every metric. From high volatility risks to valuations, its future growth prospects are not great, either. The site forecasted a 10.6% software industry annual growth in earnings. Worse is that no analysts offer ratings on SOS.
Your Takeaway
Given the lack of Wall Street coverage, the short-selling attack on shares, and many law firms filing claims against it, this stock is highly risky. Investors are better off considering MARA, HUTMF or RIOT stock instead. They have less controversy. Better yet, cryptocurrency investors could hold the underlying asset instead. That would remove the company-specific risks associated with holding a Bitcoin mining firm.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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