On principle and devoid of any other context, Ideanomics (NASDAQ:IDEX) offers a compelling concept. As a business conglomerate investing in the electric-vehicle (EV) and battery-charging markets (along with exposure to the raging hot blockchain sector), the organization is certainly relevant. But the main challenge for IDEX stock is that it’s a narrative play.
Source: nrqemi / Shutterstock.com
What do I mean by that? Basically, you’re waiting for that next catalyst that will drive IDEX to the moon. It almost always starts with someone having some idea to do something and that something turns out to be big, like 10x big. Then another something by someone will be even bigger, like 100x bigger. And yet another something will lead to something else and it will be the biggest, like 33,980,410x biggest.
I got that last number by calculating the theoretical profitability of buying Berkshire Hathaway (NYSE:BRK.A) at a penny. Obviously, I’m being facetious. But if you look at the wild swings of IDEX stock over the trailing five years, you can see why I’m concerned. The extreme peaks and valleys indicate that investors are waiting for the next hit, like a junkie.
Outside of those hits, IDEX stock is liable to crater. Thus, the lack of sustainability whenever positive momentum arrives is worrisome.
Please don’t get me wrong — there’s opportunity in these types of trades. For instance, I discussed penny stocks to buy for those that can stomach the risk. Some of these were winners, some were terrible losers. Technically, based on the publication date, Ideanomics was a winner, but believe me — I’m not patting myself on the back.
Why? Because after an initial spike, IDEX began to tumble into what looked at the time as the spiral of death. Then, a few fateful days in November spared my blushes. That’s awesome for me (I guess), but this is a difficult life for most investors.
The Fundamental Backdrop for IDEX Stock
In other words, Ideanomics is a trade, and it can work wonderfully for those who truly understand such sectors. With effective risk-mitigation protocols, IDEX stock theoretically wouldn’t be a bad idea to put into your speculative portfolio. Most importantly, the company is tied to the burgeoning EV market, specifically the fleet vehicle segment.
What could go wrong? Hopefully nothing if you’re eschewing all good advice and going all-in, hoping to score that (insert multiple here)-bagger. But is there a fundamental case for IDEX stock? From the available data, it seems that there was a case. Let me explain.
In the five quarters leading into 2020, China’s consumer confidence index — as prepared by the National Bureau of Statistics of China — averaged just under 125 points. But it really started to pick up in the latter half of 2019, which made sense. Relations between Washington and Beijing were improving, implying the end to the trade war.
Click to EnlargeSource: Chart by Josh Enomoto
Additionally, the inflation rate started to rise, which was a logical development. Stronger consumers buy stuff, which raises demand, which in turn raises prices. But then the novel coronavirus hit and everything went haywire.
Consumer confidence plummeted, as you would expect. However, since bottoming out in June, sentiment has charged higher. Still, the takeaway is that the latest read (as of September 2020) is 120.5 points, 3.6% off the aforementioned average.
But what truly caught my attention was the inflation rate. After a brief stabilization period, the rate has been cratering. This severe erosion makes me very suspicious about the health of the Chinese economy. Put another way, one of these metrics will be proven right, either consumer confidence is strong, or inflation is low, meaning deflation is a growing threat.
Under those circumstances, I’d rather hold off on massive wagers on penny stocks tied to Chinese consumer markets.
Commodities Signaling a Clue?
Finally, another reason to stay on the conservative side is the rise in precious metals and cryptocurrencies. Of course, the former has always been a safe-haven sector, a reliable anchor even if that anchor doesn’t pay dividends or do much of anything. The latter has been an outright phenomenon, perhaps heading toward some heady prices.
But the obvious reality is that when these assets move higher, they’re taking capital from something. And that something probably isn’t a recognized blue chip which supports millions of 401k plans. No, it’s probably that something that leads to something big, which leads to something bigger … you get my drift.
As I said, I’m not opposed to IDEX stock. You can do whatever you want with your money. I’m just saying I don’t like the fundamentals. And I’m not sure I like the technicals either, considering that the speculative money appears to have found its favorite vices.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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