Stocks to sell

China-based SOS Ltd. (NYSE:SOS) shares have had a rollercoaster ride in recent weeks. SOS stock finished 2020 at $1.48. Then, on Feb. 17, it hit a multi-year high of $15.88. By Feb. 26, the share price was down to $4.21. The rapid decline happened as a result of a report by Hindenburg Research and Culper Research that reported the firms had taken a short position on Chinese blockchain firm.” As I write, SOS stock is around $6.50.

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Highfliers like SOS stock get significant market attention. Amid such short-term volatility, it is not always easy for retail investors to get all sides to a story.

SOS describes itself as a cryptocurrency miner. Bitcoin (CCC:BTC-USD) and other cryptos are have been seeing new record highs in recent days. For instance, year-to-date (YTD) Bitcoin has gained over 91% and its market capitalization has passed $1 trillion. For most crypto miners, their share prices have become somewhat of a proxy for cryptocurrencies.

Therefore, the market has been abuzz with the report from Hindenburg and Culper. It alleges that they “find the Company’s claims regarding its supposed cryptocurrency mining purchases and acquisitions to be extremely problematic, if not fabricated entirely.” They “believe shares are worthless.”

InvestorPlace.com contributor Thomas Yeung, CFA has also written a detailed piece on why he is “saying goodbye” to this “Phony Blockchain Business.”

As I agree with his conclusion, I’d like to suggest that potential investors should not buy SOS stock and avoid speculating. Instead, they could use their hard-earned capital to invest in other shares that have verifiable businesses with high-growth potential. Here’s why.

Exactly What Business Really Underpins SOS Stock?

According to a March 3 SEC filing, SOS was initially “formed in Delaware on July 12, 2004 as China Risk Finance LLC. We began our credit analytics service provider business in 2001… On April 28, 2017, our ADSs commenced trading on the NYSE under the symbol XRF… In the third quarter 2018… [we] started to transition our business to other industries.”

The report continues to state, “On May 5, 2020, we entered into a set of agreements… to acquire YBT, which controls its variable interest entity SOS Information. The transaction was consummated on May 15, 2020… Accordingly, we started our newly acquired data mining and targeted marketing services business through SOS Information.”

The second half of 202o has been busy for the company. Management says, “we ceased our legacy peer-to-peer lending business and have since focused on becoming a leading high-technology services business with services including marketing data, technology and solutions for insurance companies and emergency rescue services in China. We also changed our trading symbol to “SOS.”

SOS stock’s current business is quite varied. It ranges from: data mining and analysis to “technology and solutions for insurance companies, emergency rescue services.” There’s also an SOS cloud emergency rescue service software as a service (SaaS) platform, a data warehouse “with 120 million active customer records,” and finally a crypto mining business, according to the filing.

Put another way, operations of SOS stock can be summarized as an insurance-marketing business turned cryptocurrency miner. Going forward, management “anticipate[s] to generate revenues from selling cryptocurrencies generated from those cryptocurrency-mining pools and also renting out hash power to third parties.”

However, it does not yet have any revenue from crypto mining. Therefore, it is not possible to verify the extent and the viability of operations until the company releases more information and earnings reports.

Bottom Line on SOS Stock

In its early days as “China Rapid Finance,” SOS Ltd. operated a consumer lending marketplace. Then, came the name change and the move into an insurance business. And as the price of cryptocurrencies took off, management added crypto mining to their line of business.

I believe SOS stock is a highly risky proposition at this point. Therefore it does not deserve any hard-earned investment capital. However, if you are speculator and day-trader, you might understandably want to ride the wave as long as you are within your well-defined risk parameters.

The details of the SOS stock story is long and complicated. Yet, those buy-and-hold investors who hold paper profits in SOS stock right now might want to take money off the table.

Readers interested in the financial technology (fintech), blockchain, or cryptocurrency space might also consider investing in a relevant exchange-traded fund (ETF). Examples include the Amplify Transformational Data Sharing ETF (NYSEARCA:BLOK), ARK Fintech Innovation ETF (NYSEARCA:ARKF). and Capital Link NextGen Protocol ETF (NYSEARCA:KOIN).

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.