As any stock trading for under $5 per share is classified as a “penny stock,” admittedly sometimes this term can be a misnomer. However, this term accurately describes Ideanomics (NASDAQ:IDEX), as IDEX stock trades for literal pennies per share.
At first glance, this early-stage electric vehicle company may seem a low-downside/high-upside opportunity. Especially as shares in recent weeks have made a relatively large move higher.
As recently as late April, IDEX was changing hands for around 2 cents per share. Since then, it has more than doubled, rally back to around a nickel per share. Yet before you assume this is a sign of a recovery taking shape, think again.
There’s a reason why shares have ended up deep in the stock market junkyard. While a recovery could happen in theory, more heavy losses are more likely.
From $5 to 5 Cents
Ideanomics may be more of an under-the-radar EV play today, but back in late 2020 and early 2021, the stock was on the radar of many retail traders.
The post-election bubble in EV stocks during late 2020, plus the “meme stock” trend of early 2021, didn’t help IDEX. Instead, there was enough speculative frenzy in the air to send IDEX from under $1 per share, to above $5 per share.
Yet not too long after making an escape from “penny stock territory,” IDEX stock reversed course. First, shares slid lower, as the EV and meme stock bubbles deflated. Then, shares continued to nosedive, because of worsening fundamentals.
As I discussed last October, net losses ballooned for Ideanomics during 2022. This meant big cash burn for the company, relative to its cash position. The company turned to dilutive fundraising methods, such as the issuance/sale of additional shares.
Put it all together, and it’s no surprise that this stock has fallen from $5 to 5 cents per share in less than two and a half years. However, despite already destroying so much shareholder value, what remains appears to be under threat as well. Here’s why.
Recent News Bodes Badly for Shareholders
It’s not a mystery why IDEX stock trades where it does today. It’s also not a mystery why some speculators may roll the dice on it today. Many believe it’s all uphill from here, with any improvement to the situation resulting in an outsized jump for shares.
This frenzy of bottom-fishing, rather than any news out of the company, explains the stock’s aforementioned move from 2 cents to 5 cents over the past few weeks. In fact, outside news of a relatively-small contract win for one of its subsidiaries on May 8, recent news with Ideanomics bodes badly for shareholders.
Namely, the key takeaway from Ideanomics’ latest earnings report. As seen in its full-year financial results, net losses remain extremely high, coming in at $282.1 million for 2022. Even if losses narrow in 2023, Ideanomics still needs to raise substantial cash to absorb them, given its insufficient cash position ($21.9 million) as of Dec. 31, 2022.
This leaves IDEX shareholders caught in the middle of a lose/lose situation. There are two likely outcomes, but neither one points to a rebound.
Ideanomics could avoid bankruptcy, by doing what it has done for several years to sustain its diversified electric vehicle operations: raise more cash.
But with a market cap of just $35.4 million, raising tens of millions, much less hundreds of millions, would mean an extremely high level of shareholder dilution. This will additionally pressure the stock.
Worse yet, it’s not a given that the company can keep raising more funds. If financing sources run dry, IDEX investors could experience a total wipeout.
Counter these risks, against the slim chance that one of Ideanomics’ grab bag of unprofitable EV ventures suddenly becomes profitable, and it’s clear why this stock is not worth buying.
As was the case last fall, when it was trading for more than five times what it trades for today, avoid IDEX stock at all costs.
IDEX stock earns an F rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.