Stock Market

Proceed With Caution When Investing in Unfocused Ideanomics

Ideanomics (NASDAQ:IDEX) stock is a fascinating look at a firm in transition. The company has long been an unsuccessful business and IDEX stock has stumbled in the past. Although it has some positive catalysts, the outlook for this stock is still murky.

IDEX stock: An electric tractor sits in a field on a sunny day with a wind turbine in the background.

Source: Shutterstock

The company has seen various name and ticker symbol changes. For example, it was called You on Demand and then Seven Stars Cloud Group before it was known as Ideanomics. It also operated radically different businesses before settling on its current line of operations.

Ideanomics went heavily into the electric vehicle (EV) angle last year, and shares rocketed higher for a brief period. Then Hindenburg Research blasted the company. It alleged that Ideanomics’ main vehicle operations in China were grossly exaggerated and that management had doctored photos to sell investors a false reality. Shares tanked in response. Hindenburg, as you may recall, was the firm that exposed Nikola’s (NASDAQ:NKLA) shenanigans that involved rolling vehicles down a hill.

Ideanomics never convincingly refuted Hindenburg’s allegations. However, the firm was able to pivot once again, acquiring and launching various other businesses. With time, investor concern over its EV operations in China has faded. So has IDEX stock become a decent investment despite its various stumbles?

Ideanomics Is a Business Conglomerate

First of all, Ideanomics is a complicated business. It has operations in tractors, motorcycles, electric vehicles, battery charging, real estate sales and a commodity brokerage. This plethora of activity makes it hard to zoom in on a particular line of business.

For example, the company’s vehicle deliveries in China have been lackluster, to put it mildly. That aligns with Hindenburg’s suggestion that management overstated the scope and potential of those operations.

But investors might be willing to overlook that shortcoming. After all, Ideanomics is showing upward trends in other businesses, such as tractors.

Furthermore, Ideanomics’ acquisition of Timios changed the narrative. Timios is an online realty play in California that had revenue north of $60 million last year and a decent operating profit. The real estate market is also on fire now, so Timios should have decent growth prospects.

Even assuming the bears are right and Ideanomics’ EV dreams are unlikely to come true, the acquisition ensures that Ideanomics has solid revenue to fall back on.

IDEX Stock Is Paying for Its Business With Dilution

Since 2019, Ideanomics’ total outstanding share count has risen from roughly 100 million to almost 400 million. In other words, a long-time shareholder’s stake has been diluted dramatically over the past few years. This is not ideal.

Then again, Ideanomics’ previous business ventures had failed. Issuing stock allowed the company to acquire new operations. The question is, will Ideanomics hone in on one or two of these that are finding traction? Or will it keep diluting shareholders endlessly with its stream of new acquisitions?

It’s really hard to forecast what this business will look like in a few years. If you’d analyzed it last summer, for example, you would have avoided IDEX stock because its main EV business had been called into question. With the Timios acquisition, however, Ideanomics suddenly became a bet on the U.S. housing market. That’s quite an abrupt shift.

Ideanomics has been doing sharp pivots for years. You’ll recall this company used to be You on Demand, which was a video streaming service. Then it became Seven Stars, which sought to commercialize blockchain technology. Now it is focused on EVs and real estate. In five years, who knows where it will be.

IDEX Stock Verdict

The issue with Ideanomics is that it’s hard to figure out the company’s long-term game plan. It’s seemingly working on a million different things at the same time.

This has its benefits. For one thing, Ideanomics can largely move beyond the allegations of serious wrongdoing in China. It has so many subsidiaries now that a failure in one of them won’t crush the whole business.

On the other hand, what is Ideanomics? Is it a venture capital investment firm? An EV company? A play on tractors and motorcycles? Given Ideanomics’ small size and limited operating history so far, investors should approach the company with a good deal of skepticism.

That said, Ideanomics has started generating meaningful revenue and gross profit, and that puts it ahead of numerous penny stock rivals. Despite its flaws, IDEX stock certainly isn’t the worst EV or green energy stock out there. However, there’s still a great deal of uncertainty in the company’s outlook.

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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