Imagine investing in early tech stocks a few decades ago, only to see those companies become leaders in their industry and deliver solid gains. Now imagine this: could one of those names have been Ideanomics (NASDAQ:IDEX) and IDEX stock?
What I’m getting at here is that even the companies that are now tech giants had risks when they first started out. However, they also had focused business plans.
Ideanomics is different from other companies because it has a dual business focus. That separates it from other names back in their early days. It also makes me wonder if the company is stretching itself too thin.
So, is IDEX a name to buy now and wait on? Can it really turn high expectations into stellar profits?
IDEX Stock: What Does the Company Do Exactly?
Ideanomics describes itself as “a global company driving mobile energy transformation and the green fintech revolution.” The company continues on it’s site, “We combine deal origination and enablement with the application of technologies such as artificial intelligence, blockchain, and others as part of the next-generation of smart financial services.”
Confused? Here’s a simpler way of saying what Ideanomics does. It has two business divisions. The first one, Ideanomics Mobility, focuses on green-energy transportation initiatives, namely electric vehicles (EVs). The second, Ideanomics Capital, deals more in innovative financial technology, or fintech.
Basically, Ideanomics Mobility assists fleet operators in building out their EV fleets on their budget. The company makes money from the sale of EV models, EV financing solutions and the sale of energy for those EVs. Ideanomics Mobility also has four subdivisions, some of which are international.
On the other hand, the company’s Ideanomics Capital fintech segment has three other subdivisions itself, which deal in real estate, the “small cap marketplace” and finally artificial intelligence (AI) and machine learning for regulators and institutions.
Because Ideanomics was founded in 2004, it’s not considered a start-up company. However, all of these divisions and sub-divisions make me wonder what exactly it’s trying to achieve. The diversity of business operations may make IDEX stock promising for some, but it’s too alarming for me.
What is the economic moat that Ideanomics is offering or trying to build? Yes, the many businesses behind IDEX show a dynamic culture. But I also see a strong weakness and a lack of focus.
Invest Here, Invest There — But Where’s the Money From?
Ideanomics’ latest press release announced that the company acquired “a 20% stake in Energica Motor Company, a leading manufacturer of high performance electric motorcycles.”
Why I’m not excited by all of these diversified investments is simple. There are mainly two arguments.
First, like I said, I do not see a clear business vision here — where Ideanomics is heading and what it wants to achieve.
To me, that’s like investing in several stocks without having a clear philosophy or goals. You can buy growth stocks, value stocks, meme stocks and so on, but what good does that do you without knowing the risk or expected return? Without a clear investment policy, you cannot expect to succeed.
In my opinion, Ideanomics buys and invests in companies too broadly, moving from large commercial EVs like buses or cars to more niche markets like electric bikes. It seems promising, but without more focus it’s also dangerous.
And that leads me to my second qualm — IDEX’s strategy is dangerous. Any company can pursue diversification in its business operations. But they must have the financial ability and strength to achieve that effectively. Acquiring companies with little profitability and cash turns this into a very risky situation.
For this second knock against IDEX stock, though, we should take a closer look at the fundamentals.
Issuing Stock Is Not Good for Investors
Firstly, Ideanomics is unprofitable. For example, net losses from continuing operations widened from $98 million in 2019 to $156 million for the trailing twelve months according to Yahoo! Finance. Free cash flows have also been continually negative for the past several years. Further, an operating income of $10 million for 2019 has turned into a negative operating income of nearly $40 million.
On top of that, the company’s 2018 revenue of $378 million collapsed to some $45 million in 2019 and then to less than $16 million for the trailing twelve months.
Along with these poor financials, though, IDEX recently sold shares at an “aggregate offering price of up to $150 million” for business purposes, such as paying off debt. So, IDEX stock poses a risk of stock dilution to its investors, too.
IDEX Stock Verdict
All in all, Ideanomics’ plans to expand and become a leader in EVs and fintech come at a cost. With very poor financial performance, IDEX stock is just too expensive to buy based on its ambitious dreams alone.
The financial results don’t even seem to hint at profitability. Overly divided across its segments and facing a severe decline in revenue, I have to pass on this EV and fintech play.
On the date of publication, Stavros Georgiadis, CFA, did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.