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Ideanomics: Massive Potential, but Massive Execution Risk

Ideanomics (IDEX) is headquartered in New York, USA, and operates in the financial technology industry. The company’s primary focus is the development of FinTech products, next-generation financial services, and the adoption of commercial electric vehicles.

Its global operations are currently running in the UK, Malaysia, and Ukraine. The company began its operations in 2004 and has since expanded to hire new talent and expand its customer base.

Ideanomics has positioned itself as the ultimate electrification solution provider for the commercial mobility industry. Recently, the company also launched a platform for ESG-based fundraising and investing. The platform JUSTLY also has strong growth potential, according to analysts.

I am neutral on Ideanomics as it has immense upside potential and substantial forward growth momentum but is currently running up large losses and faces substantial execution risk, making it a very speculative investment.

Strengths

Ideanomics has a strong global footprint with its operations and brand awareness stretched across several countries and their cities. It also has a diversified revenue stream stemming from software and programming segments aiming to reach more extensive customer segments globally. Another reason it has been able to increase its market share and successfully scale new products is its leadership position in the industry.

In addition to strong brand recognition, the company also has a strong structure. In particular, Ideanomics’ skill development and talent management have played an integral role in the company’s overall success.

Recent Results

The company was able to earn revenue of $26.8 million in the year ended December 31st, 2020. EV revenue, in particular, grew by 600%, going from $2.7 million in 2019 to $19.5 million in 2020.

However, revenues generated in 2019 totaled $44.6 million. Most of this revenue was a consequence of the contract-based Digital Asset Management Services, which were not included in the revenues for 2020.

The gross margin in 2020 reached 7.7%, with $2.1 million in gross profit. Additionally, the company also invested in Solectrac, a leading electric tractor company, in October 2020.

For 2021, the company is expected to post massive revenue growth of over 360% and should continue to grow into 2022 with 17% revenue growth forecast by analysts.   

Valuation Metrics

IDEX stock is difficult to value as it is unprofitable but is growing rapidly. It currently trades at an EV/revenue multiple of 2.9x, which implies that if it can scale effectively and generate decent profit margins, it could generate fantastic total returns for shareholders.

TipRanks’ Smart Score Rating

IDEX stock earns a Smart Score of 1 out of 10, implying an “underperform” rating. This stems from bearish blogger opinions, very negative TipRanks investors sentiment, neutral news sentiment, and negative technicals.

Summary and Conclusions

Ideanomics is an innovative and rapidly growing company that operates at the intersection of two exciting industries: FinTech and electrification. As a result, it has immense upside potential and could generate phenomenal returns for shareholders if it can effectively scale into profitability.

That said, it has a long way to go to achieve profitability, and – while the company certainly has strong growth momentum at the moment – there is substantial execution risk involved here.

Therefore, investors should keep in mind that it is a highly speculative investment and size any investment accordingly.

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