Ideanomy (NASDAQ:IDEX), a serial acquirer of various sets of businesses, has grown significantly over the past six months, topping 159%. Over the past month, IDEX stock climbed to $ 5.43 per share, from $ 3.16 a month earlier. It recently stood at $ 3.85 per share with a market cap of $ 1.39 billion. However, based on its recent purchases, it’s possible that IDEX’s stock still has some way to go.
When I wrote about Ideanomics last month, I focused on the company’s uses and sources of cash. It seemed to me that the Chinese company was going to have to raise more cash. And this despite the capital increases he had already carried out. I estimated that Ideanomics needed to raise at least $ 60 million.
The convertible note
This is exactly what the company ended up doing. On February 8, Ideanomics said it had raised $ 80 million in the form of a convertible debenture. The note pays interest at an annual rate of 4%, but more importantly, it has a conversion feature priced at $ 4.95 per share.
At the time, on February 8, the price was higher than that of $ 5.43 per share. This means that when the debenture was issued it was already in the money. It’s very strange. Usually, when a convertible note is issued, the conversion is at a premium to the stock level at the time.
Otherwise, it’s not fair to other investors since the company is basically issuing stocks with a dividend that other investors can’t get. By issuing the note with a conversion function above the market price, the convertible will not have the same value as the underlying stock.
However, since then IDEX stock has fallen. It must be that the management had a good feeling that their stock was going to go down and therefore they weren’t that concerned about converting discounts. So, as it stands, the conversion price of $ 4.95 is about 29% higher than the February 19 price of $ 3.85 per share.
The point is, the company has raised the roughly $ 80 million that I suspect it needs to cover its ongoing losses and all of the acquisitions it has made recently. To be fair, there has been a lot of financial activity. It will be interesting to see the year-end and first quarter financial statements of the company. This will help investors see more clearly where their financial situation really is.
What to do with IDEX shares
Of all the acquisitions the company has made recently, I suspect the most profitable is the Timios real estate title and escrow company. Ideanomics said it paid $ 40 million in cash for the acquisition.
The problem is, there is no information on its performance or on how much Ideanomics expects to generate revenue or profit from this company. However, traditionally these types of title and escrow companies tend to be quite successful. They charge fees for the closing of real estate transactions and the regularity of all files. Their profitability depends on the growth of the real estate market.
Therefore, I suspect that this company could be a cash cow for Ideanomics in the future. This could help fuel the cash flow the business will need for its adventures in electric vehicles and ride-sharing businesses.
The January 2021 presentation on the Ideanomics website says on page 14 that Timios has had a 95% customer retention rate over the past 10 years. Additionally, it also states that Timios is generating $ 60million in revenue in 2020 and possibly more.
This is what leads me to suspect that the business is likely to be quite profitable. In fact, on February 19, Timios expanded its operations to California with the addition of three new offices.
If Timios turns out to be the company’s cash cow, then Ideanomics could actually stand a chance of making serious profits. This is what leads me to believe that the IDEX stock could be worth a lot more.
However, without more financial information, I cannot establish a firm analysis or valuation of the IDEX stock. The company is expected to release its results on March 31. Once we can see how all of these acquisitions turn out in terms of cash flow, a clearer picture of its financial future can then be assessed.
As of the date of publication, Mark R. Hake does not hold a long or short position in any stocks or securities mentioned in this article.
Mark Hake writes about personal finance on mrhake.medium.com and run the Total Value of Return Guide that you can consult here.