Ideanomics (NASDAQ:IDEX) announced on March 1 that it would sell $150 million of IDEX stock at market prices through Roth Capital Partners. Its share price gained 20% on the news.
What the company does with the $150 million will tell investors all they need to know about the holding company/electric vehicle distributor/ETF provider’s future.
Frankly, I really don’t care, but seemingly, many investors do, so it makes sense to consider what its best uses for the capital would be.
Let’s consider some of the options.
Buy Berkshire Hathaway Stock
I read in Fortune that Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) has more tangible assets than any other U.S. public company at $154 billion, $27 billion more than AT&T (NYSE:T) in second place.
Of course, Berkshire has used far less debt than AT&T to get those tangible assets, but that’s a subject for another day.
You might think I mention buying Berkshire stock as some backhanded criticism of Ideanomics, but you’d be wrong.
In my last article about Ideanomics in early February, I suggested that there might not be a safe way to invest in its stock. Up 638% over the previous six months, I felt like the hodgepodge of assets it owns had run too far, too fast, and was primed for a fall.
As I write this, it’s down 27% from Feb. 5, the date of my article, and that’s after its 20% gain on the stock sale news.
Electric Vehicles and IDEX Stock
Ideanomics has a bunch of electric-vehicle investments that could pan out nicely. The company’s Mobility segment is its primary revenue generator, with sales from electric vehicles (EVs) and traditional internal combustion engine (ICE) vehicles.
In Q3 2020, it sold $8.9 million EVs and $1.3 million ICE vehicles. Both were considerably higher than in the same period a year earlier.
But it’s a long way from the $6.65 billion in revenue EV company BYD generated in Q3 2020. More importantly, it generated a profit of $262 million during the quarter. Buffett invested $232 million in the maker of EVs, hybrids, and ICE vehicles in 2008 for 8.25% of the company. Today, it’s worth at least 30 times that amount.
As I mentioned in my article, BYD, in partnership with China ride-hailing company Didi, sold 2,000 BYD D1 all-electric ride-hailing vehicles to Ideanomics’ Mobility group for $35 million.
By investing in Berkshire, you get a much safer way to play the electrification of transportation.
A purchase of $150 million in BRK.B stock would give it almost 601,000 shares of the holding company.
Just a thought.
What Else Could It Do With the Money?
At the end of the third quarter, Ideanomics only had $20.1 million in total debt against $27.6 million in cash, so it really doesn’t need to do anything on the debt repayment front.
This doesn’t include the $40 million it used to pay for its acquisition of Timios, which it completed on Jan. 11. Timios uses technology to improve real estate title and escrow services. It’s held within its Ideanomics Capital segment.
It also doesn’t include the $15 million in cash and $35 million in stock it will use to acquire WAVE, a wireless charging provider for buses and other commercial vehicles.
However, even if it borrowed the entire amount, it would still only have $75 million in debt, which amounts to less than 6% of its current market capitalization of $1.35 billion.
Clearly, Timios could use capital to scale its business further. Through the first nine months of 2020, Timios had $54.5 million in revenue, 20.8% higher than its $45.0 million in revenue for all of fiscal 2019.
And then you’ve got the entire Ideanomics Mobility segment that’s slowly building itself into an actual operating business rather than just a provider of capital.
Between WAVE and its Mobile Energy Group, you’ve got two businesses that will require a big investment to grow to scale.
How it spends this $150 million could be the make or break for IDEX stock.
The Bottom Line on IDEX Stock
It’s weird. I started writing this article thinking I knew precisely where I was headed in terms of the beginning, middle, and end of the story.
But then, as I’ve been writing, I’ve been thinking about the possibilities, and it’s got me more optimistic about Ideanomics’ future.
For instance, the Timios acquisition provides a greater balance between its two operating businesses. To the point that I could see a future separation of the Mobility and Capital divisions into two independent public companies.
It won’t happen tomorrow, mind you, but I could see it happen in 2-3 years. Of course, a lot has to go right. It helps that Timios is already profitable.
While there is still speculative risk involved with IDEX stock, if you can afford to lose it all, I don’t see a problem picking up some shares at current prices. Even better, if its share price falls into the low $3s.
This is a conclusion I didn’t see coming.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.