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SOS Limited: There’s Little Hope for This Sinking Penny Stock

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SOS Limited (NYSE:SOS) is a company focused on cryptocurrency mining. For investors, however, SOS stock now has come to resemble SOS’ common usage as a distress signal short for the phrase “save our ship.” Indeed, SOS stock has hit an iceberg, with the share price falling from $7 last spring to just 70 cents now.

Bitcoin miners in large farm. ASIC mining equipment on stand racks mine cryptocurrency in steel container. Blockchain techology application specific integrated circuit datacenter. Server room lights. SOS Stock

Source: Artie Medvedev / Shutterstock.com

While a 90% decline might seem like an opportunity, there is a good reason for caution even now. For one, SOS has demonstrated little success as a business, either in cryptocurrency or other ventures. For another, short sellers have raised some serious allegations against the company. Additionally, management decisions, such as hitting shareholders with a massive dilutive secondary offering, haven’t helped matters. Let’s not get ahead of the jump though.

What Is SOS Limited?

SOS’ website offers a grand vision of being a broad-reaching technology platform. It is supposedly an artificial intelligence blockchain leader. SOS claims to provide: “The SOS cloud emergency rescue service SaaS platform dominated by three products: basic cloud (medical rescue card, automobile rescue card, financial rescue card, rescue mutual aid card), cooperative cloud (information rescue center, intelligent big data, intelligent software and hardware), and information cloud (news today, e-commerce today).”

From my vantage point, that sounds like a lot of buzzwords rather than a coherent business strategy. In any case, SOS has not done the work to make most of those proposed areas into meaningful revenue-generating operations as of yet. However, there is one area where SOS has put forward a more concrete vision of its business. That would be in cryptocurrency.

In January 2021, SOS claimed to have entered an arrangement to acquire 15,645 mining rigs. These would be “A10 Pro 780M” and “T2T 37T” model of miners, and the company would pay $20 million for these units. Given that the price of Bitcoin (CCC:BTC-USD) was soaring at this time, this announcement caused a frenzied rally in SOS stock.

Short Sellers Raise Alarms

Not long after SOS stock took off on the cryptocurrency announcement, people began asking questions. In fact, both Culper Research and Hindenburg Research published scathing reports about SOS.

The bears highlighted numerous points, such as SOS’ history. It came about from a reverse merger, which is never a great sign. Its previous iteration was called China Rapid Finance, and that company lost almost all of its value before turning into SOS. There were also concerns about the management team and potential insider dealing. As if that weren’t enough, SOS has seen a revolving door of auditors.

Perhaps most tellingly, Culper found that the supposed provider of SOS’ bitcoin mining rigs, HY International, appeared to be a shell company. It operated out of a virtual office, had little sign of existing aside from the SOS deal, and appeared to have a related party connection to an SOS employee. Further to that, Culper claims that the bitcoin mining rigs SOS displayed in photos weren’t of the same brand as HY claimed to provide, raising doubts over how much of SOS’ crypto operations were legitimate.

SOS Has Failed To Demonstrate Credibility

The easiest way to get short sellers to go away is disprove them with results. If SOS put up solid earnings and started buying back stock or paying a dividend, that would show the market that the short reports were full of hot air.

But, rather, SOS has not been able to put up such results. In fact, SOS slammed its shareholders with another stock offering in November. It was a chunky one too, with the company offering more than 51 million shares to the public. The price of SOS stock collapsed following this stock offering.

It’s unclear what SOS’ numerous stock offering have accomplished. Despite raising so much money, the company’s quarterly results continue to disappoint as the company posts sizable operating losses.

SOS Stock Verdict

I wouldn’t go anywhere near SOS stock right now. The company’s core business, bitcoin mining, would be a slog already given the weak cryptocurrency markets.

Throw in all the uncertainty around the company’s strategy and the short seller allegations and that adds more complexity to the situation. On top of that, with SOS stock under a buck, it’s in danger of being delisted. And the company just hit shareholders with a massive dilutive stock offering only a few months ago, further pushing SOS stock down into the dumps.

It’s understandable why traders might focus on SOS given the low share price and high short interest. But there’s very little evidence that there’s any real quality business at SOS. And, as such, buying the stock is a pure gamble at this point.

On the date of publication, Ian Bezek 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.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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