The commercial electric vehicle (EV) and fintech operator Ideanomics, Inc. (IDEX) has been trying to diversify its portfolio by making strategic deals. However, given its unprofitability and financial weakness, will its diversification efforts help the stock? Read on.
Ideanomics, Inc. (IDEX) facilitates the adoption of commercial electric vehicles (EVs) and develops financial services and fintech products. Its share price has climbed 43.2% year-to-date on investors’ optimism over the EV industry's prospects.
However, IDEX’s stock price had retreated 26.2% over the past three months because of the company’s decision to report its expected sales for its Mobile Energy Global (MEG) segment quarterly rather than monthly.
Even though the company has made strategic acquisitions to enhance and strengthen its portfolio, it remains unprofitable. IDEX’s Malaysia-based E-bike subsidiary Treeletrik recently inked a multi-year deal to serve the ASEAN region. Despite this positive development, the company’s unimpressive financials don’t justify its high valuation. Given that IDEX’s EV business is struggling in the crowded EV space, we think its growth potential looks bleak.
Here is what we think could influence IDEX’s performance in the near term:
Strategic Acquisitions May Not be Enough to Support Growth
On April 14, IDEX’s subsidiary, Tree Technologies Sdn Bhd (Treeletrik), a Malaysian EV maker, agreed on a partnership to supply 200,000 units of its 100% electric motorbikes to Indonesia. Also, last month IDEX acquired 20% of Energica Motor Company, a leading electric motorcycles manufacturer, for$13.2 million. While these investments and acquisitions could help the company expand its footprint, its lack of focus on a particular business strategy could increase investors’ anxiety. With poor financials and cash flow, it could be difficult for the stock to translate those moves into profits in the near term.
IDEX’s gross margin declined 20 basis points year-over-year to 43.8% in the fourth quarter ended December 31, 2020. This was due primarily to lower volume and business mix. Its EBITDA and EPS have declined 436.8% and 44%, respectively, year-over-year. Furthermore, the company’s revenue has declined at a CAGR of 43% over the past three years.
IDEX’s 7.7% trailing-12-month gross profit margin is 84.2% lower than the 48.6% industry average. Its 0.2% asset turnover ratio is 76.7% lower than the 0.6% industry average. And its trailing-12-month levered free cash flow margin and EBIT margin are negative 182.3% and 186.2%, respectively.
In terms of trailing-12-month EV/Sales, IDEX is currently trading at 36.19x, 663.5% higher than the 4.74x industry average. Its 10.58x forward Price/Sales multiple is 159.4% higher than the 4.08x industry average.
POWR Ratings Reflect Bleak Prospects
IDEX has an overall F rating, which translates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. IDEX has an F grade for Value, and a D for Quality. The stock’s premium valuation and low profitability are reflected in these grades.
Also, it has a C grade for Growth, which is consistent with the weak growth prospects indicated by its financials.
In addition to the grades we’ve highlighted, one can check out additional IDEX ratings for Sentiment, Stability, and Momentum here.
IDEX is ranked #107 of 119 stocks in the D-rated Software – Application industry.
There are several top-rated stocks in the same industry. Click here to view them.
IDEX’s high valuation and bleak financial growth prospects have become causes of concern for investors. Even though the company has been diversifying its portfolio to strengthen its market position, absent a clear focus and a hint at profitability, the stock could witness a pullback soon. So, we believe it’s wise to avoid the stock now.
IDEX shares were trading at $2.83 per share on Tuesday morning, down $0.02 (-0.70%). Year-to-date, IDEX has gained 42.21%, versus a 11.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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