SOS Stock: How Does This Crypto Mining Play Stack Up?

Cryptocurrencies are roaring back, making crypto mining plays such as SOS Limited (SOS) appear more attractive. Given the recent rise of Bitcoin (BTC) and Ethereum (ETH) to all-time highs, this sector is once again red-hot.

However, SOS stock is one that has substantially underperformed its peers of late. Recently, the company has come under fire from investors for a big stock offering. Additionally, Chinese regulatory crackdowns and outright bans aren't good for Chinese-based crypto miners such as SOS.

As such, this is a stock that's under pressure. Sure, there are other businesses that are included in the company's portfolio. SOS isn't necessarily a pure-play crypto miner. However, this is the segment most investors care about.

This is also a company that believes in the innovation the blockchain provides. Via a rather impressive report in September, the company noted revenue growth of 1,700% on a year-over-year basis. There's a reason some hyper-growth investors like this small-cap stock.

That said, I'm bearish on this stock right now considering all the headwinds the company faces. Let's take a look at what these challenges are, and whether the company has what it takes to come out the other side as a winner. (See SOS stock charts on TipRanks)

Big Capital Raise Not Necessarily Bullish Sign

As mentioned, SOS recently announced that the company had issued a rather large private placement issuance to investors. This $90 million issuance should provide more growth capital to this crypto miner. However, there's an argument to be made that this news isn't as positive as it may first seem.

This issuance was done at an 18% discount to Tuesday's closing price last week. That's a rather significant discount. Thus, investors saw fit to drive the share price of SOS stock down 30% mid-week, at a time when other crypto mining peers saw significant valuation increases.

This move continues a longer-term bearish trend for SOS. From a technical perspective, there's not a lot to like about this company. Yes, SOS has shown some impressive growth in the past. However, many investors are concerned about the Chinese crackdown on crypto mining and the costs associated with shifting the company's mining activities out of the country.

Lack of Focus Remains a Key Issue

Another issue many investors have had with this stock is the relative lack of strategic direction taken by the management team. This is a company that has shifted forms over the years, changed names and the overall business model multiple times.

While SOS appears to have settled down and confirmed its identity as a crypto miner, that business in China right now is extraordinarily high-risk. Accordingly, there's not a lot to like about the direct this company is headed, relative to other U.S. or Europe-based crypto miners.

Astounding Interim Report

Now for some good news. After all, there's a reason why investors choose to put their money behind SOS stock.

This company has been making some moves to get more U.S. exposure of late. Recently, the company developed blockchain operations in the U.S., via a joint venture with Niagara Worldwide. This deal could be the catalyst this China-based crypto miner needs.

This deal also comes along with 150MW of electricity to support the company's U.S. mining activities. This is a significant move in this regard.

Furthermore, there's some hope this company can grow its way out of this mess. There's a lot of weight on SOS stock, but it's also a firm that could potentially do a hard pivot and transition to a more sustainable business model. On this front, only time will tell.

The company's recent results speak to what SOS has been able to do in relatively short order. Accordingly, there's a bull thesis that is at least understandable with this stock.

Bottom Line

It's true that SOS faces risks from Chinese and U.S. authorities. The crypto mining space is a difficult one to be in, and the recent capital raise that caught investors by surprise certainly doesn't further the investment thesis on this stock.

However, there are some bullish arguments to be made around the company's speculative growth prospects. If SOS executes perfectly on its strategic pivot, upside is possible.

That said, this is likely a stock that's too far up the risk tolerance spectrum for most investors to consider right now.

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.

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