Ideanomics is a Huge Bet on the Multi-Billion Tractor Marketing Going Electric

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The two big spikes in shares of Ideanomics (NASDAQ:IDEX) on above-average volume should tell speculators all that they need to know. Chances are high that IDEX stock will jump above the $3.00 level only to faces significant selling pressure.

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Before assuming Ideanomics will fade again as it did in June and Nov., readers must ask why the stock rose in the first place.

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Why IDEX Stock Rallied Last Month

Ideanomics raised its ownership in Solectrac to 24%. In Oct., it announced a 15% stake in the e-Tractor company. Solectrac’s mission statement is to offer farmers “independence from the pollution, infrastructure, and price volatility associated with fossil fuels.” It does this by making and distributing battery-powered electric tractors.

Instead of using diesel-powered tractors, farmers have an alternative option. And since the electric vehicle market is booming, companies like Solectrac and Ideanomics may tap the stock market to raise cash. This will give it the resources it needs to deliver on that promise. Unfortunately, the rapid jump in IDEX shares, its subsequent fall, and the bearish short float of 15.5% suggest that this EV play will not pan out.

Readers should not dismiss this company as this author has. Because it is focusing only on commercial EVs, the development costs are manageable and the potential to bear fruit. Also, IDEX is investing only another $1.3 million. Its 24% ownership will fall to around 22% when a third-party investment is finalized.

Agricultural Tractor Market

Gallery: 4 of the Best IPOs of 2020 (InvestorPlace)

The current year has been active for the initial public offering (IPO) market. As a matter of fact, three of the ten biggest technology IPOs have happened in fiscal year 2020. That said, this includes the December 2020 IPOs of DoorDash (NYSE:DASH) and Airbnb (NASDAQ:ABNB). And they are some of the best IPOs of 2020. That said, this column will discuss four IPOs of FY2020 that have surged. And in addition to rewarding investors in the current year, I believe that these stocks are also interesting from a medium to long-term investment horizon. So, as we move towards the close of the year, let’s discuss these best IPOs of 2020: Snowflake (NYSE:SNOW) Palantir Technologies (NYSE:PLTR) Xpeng (NYSE:XPEV) QuantumScape Corporation (NYSE:QS) Now, let’s dive in and take a closer look at each one.

Best IPOs of 2020: Snowflake (SNOW)

SNOW stock opened at $120 per share would be among the best IPOs of 2020. Currently, SNOW stock trades way higher at $307. And even after the big rally, I remain bullish on the stock for the coming year. If we look at the company’s financial and business growth metrics, the reason for the surge will be clear. For FY2019, the company reported revenue of $97 million and revenue increased to $265 million by FY2020. Furthermore, for the third quarter of 2021, the company’s revenue was $160 million, an increase of 119% on a year-over-year basis. Additionally, Snowflake reported 3,554 customers in Q3 2021, which represented an increase of 84% YOY. Another growth factor is that the company reported 89% of revenue from the Americas in Q3 2020. However, this figure fell to 86% as the company expands internationally with growth in EMEA and APAC. Overall, with an ever-growing market for data cloud, Snowflake is well-positioned for multi-year growth. SNOW stock is therefore an attractive investment idea on corrections. It’s one of the IPOs of FY2020 that can be considered for exposure for the next few years.

Palantir Technologies (PLTR)

PLTR stock would also find a place in the list of best IPOs of 2020. The stock listed at $10, and climbed to more than $125 at this point. Palantir Technologies is also on a high growth trajectory. For Q3 2020, the company reported revenue growth of 52% on a YOY basis. The company also turned profitable at operating level. It’s worth noting that in December 2020, the company has announced contracts worth $190 million. Furthermore, as of Q3 2020, the company reported customer contracts with an average duration of 3.6 years. In turn, this provides clear cash flow visibility. And these factors have triggered sharp upside for PLTR stock. However, Credit Suisse analyst Brad Zelnick recently opinioned that even with the company offering “a unique data analytics platform,” valuations are stretched. Given the broad market valuation, I would wait for some correction before considering any fresh exposure. Coming back to the positives, the company’s Q3 2020 top-line growth was 52%. However, government segment revenue growth was 68% on a YOY basis. This is bullish as government contracts increase as a percentage of the total backlog. Collectively, Palantir Technologies is also expanding in regions like Asia, Middle East and South America. Regional diversification is likely to yield results in the coming years. Thus, PLTR stock is worth keeping on the radar. The stock has already delivered stellar returns in FY2020, and the long-term outlook remains bright.

Best IPOs of 2020: Xpeng (XPEV)

XPEV stock is another noteworthy listing and among the best IPOs of 2020. XPEV stock was listed at just above $20 and skyrocketed to $72. However, the stock has witnessed correction after a massive rally and currently trades at $38. The correction has also been due to the follow-on public offering. Besides being among the best IPOs of FY2020, XPEV stock is also an attractive investment for the coming years. The electric vehicle (EV) market in China is expect to grow at a strong pace in the coming years, and Xpeng is likely to be one of the beneficiaries. For Q3 2020, the company reported 265.8% growth in vehicle deliveries on a YOY basis. The company has also guided for strong vehicle deliveries for the last quarter of FY2020. With planned expansion in Europe in the coming year, Xpeng is likely to remain on a high growth trajectory. Additionally, as vehicle deliveries increase, the company’s vehicle level margin is also expected to grow. To put things into perspective, Deutsche Bank expects the company’s sales volume to grow by 110% in FY2021 to 53,500 units. Sales volume is expected to increase to 300,000 units by FY2025. Given these projections, XPEV stock is likely to witness a multi-year bull-run. And thus, I would rate the stock among the best IPOs of 2020.

QuantumScape Corporation (QS)

Special Purpose Acquisition Companies (SPAC) IPOs have also been in limelight through FY2020. QS stock is among the best performing SPACs. In August 2020, the stock was trading around $10 and it currently trades at $115. A correction from the highs is very likely, but QS stock is another name that worth keeping in the radar. As an overview, the company is developing “solid-state lithium-metal batteries for use in electric vehicles.” So, what’s the reason for the stock going ballistic? Recently, the company released data “demonstrating that its technology addresses fundamental issues holding back widespread adoption of high-energy density solid-state batteries, including charge time (current density), cycle life, safety, and operating temperature.” If solid-state lithium-metal batteries are indeed adopted in the coming years, the company is likely to be a value creator in the next decade. It’s also worth noting that Volkswagen is the largest shareholder in QuantumScape. Therefore, the company has a strong financial backing and a product that can be an industry game changer. On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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5/5 SLIDES

Ideanomics said the agricultural tractor market is worth $75 billion. The North American market will reach $20 billion by 2023. So, if the company can win even a small portion of the market, it may earn a billion in annual revenue.

To realize that goal, the company is investing in Solectrac’s tractors. Those will get tested against their fossil fuel equivalents. As the project gains media attention, investors may grow increasingly bullish with Ideanomics’ prospects.

The company is not just an EV play. On Nov. 12, at acquired Timios Holdings, a privately-held firm. The deal is worth $40 million. It exposes the company to the mortgage and title industry.

Third-Quarter Momentum

Ideanomics posted steady unit deliveries in its third quarter. Unit deliveries topped 626, up from 97 in the second quarter. It touted its investments in Qingdao and Hangzhou, China sales teams for contributing to its growing sales pipeline.

Revenue grew for three straight quarters and is up 3.4 times from last year. After cutting costs by $1.6 million, shareholders may anticipate the company will eventually reach profitability. It lost 3 cents a share in the quarter, an improvement from the 11-cent loss last year. If operating expenses dropped more, IDEX could have posted a profit.

Financing activities in the nine months ended Sep. 30 worth $45.74 million suggests that the company will not need to sell shares or take on debt. As it consolidates its acquisitions and cuts expenses, revenue will grow and the company will eventually post consistent profit growth.

Fair Value

According to Stock Rover, IDEX stock has a growth, quality, and value score at or below 30/100. Given the poor results, investors should exercise strong caution before speculating on this company. On SimplyWall.st, the site warns investors about the stock’s high volatility and poor past revenue over the last five years. Still, it has a healthy balance sheet and a price-to-book ratio of 8 times. This is below the industry average.

The sentiment is very positive because Ideanomics is investing in the EV space. The hype in the sector is lifting the stock. And if that sentiment changes for the worst, buying momentum could end. Ideanomics is especially at risk of a sharp sell-off when markets realize the EV tractor prospects are not proven. Its investment will not add to its revenue in the near-term. The agricultural industry will need to embrace EV tractors, otherwise, Solectrak will not take any market share. This would undermine the recent rally that Ideanomics enjoyed.

Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.