SOS, Limited (NYSE:SOS) has been somewhat of a controversial Chinese Bitcoin mining company listed on the NYSE. There have alternating positive and negative opinions on the company, including apparently one from Hindenburg Research. Hindenburg has not done a report other than these series of tweets on Twitter. Moreover, a short report from Culper Research here argues that the company is a fraud. But even if they are both totally wrong, from what I have been able to glean from various analyses, the market valuation of SOS stock seems to be too high.

This article in Seeking Alpha seems to be one of the better analyses on SOS stock in the sense that they argue that the company is legitimate with its U.S. backers and management.

Another report, more skeptical, raises good questions about the actual Bitcoin miners that they are purchasing.

Market Cap and Valuation

Another issue seems to be how many shares outstanding the company actually has outstanding. The second Seeking Alpha article I mentioned (by Post Hoc Analytics) above implies that there are now 1.479.410 billion ordinary shares outstanding. Since there are 10 ordinary shares per ADR (American Depository Receipt), that makes 147.941 million ADRs as of March 1.

In addition, on March 30, the company said it raised another $125 million through the issue of 25 million ADRs at $5 per ADR. This means there are now 172.941 million ADRs outstanding. On March 31, SOS stock closed at $4.98, so this gave the company a market cap of $861 million.

However, it could be substantially higher than this, depending on whether any of its many warrant holders have exercised their rights to buy ordinary shares or ADRs. We won’t know for sure until the company releases its 10-Q for the quarter ending March 31.

Moreover, as it stands now, my best guess (and that is all it is until the company updates the market) is that SOS has circa $200 million in cash. This includes the most recent capital raise. But also deducts for the purchase of the Bitcoin miners that the company has paid for. though take note — I could be off by a large factor of $50 million to $100 million.

Lastly, the Post Hoc Analytics article forecasts SOS’s miners will generate $70 million in sales. SOS stock trades for 12 times revenue (i.e., $861 million divided by $70 million).

That’s too high.

For example, Marathon Digital Holdings (NASDAQ:MARA) is forecast to make $286 million in revenue but trades for 16.6 times revenue. But Marathon has revenue and has its cost structure in place. SOS has not fully started operations yet. So to me, it doesn’t deserve an 8 times multiple.

What To Do With SOS Stock

If you decide to ignore the short reports and tweets on this stock, you still have to deal with its high valuation. That is what I have emphasized. In addition, we do not know the exact costs SOS as a Bitcoin and Ethereum miner will incur. This is another variable. Therefore, it seems that its $861 million valuation, if our assumptions about the share outstanding are correct, is too high.

However, if we deduct the cash that the company has on hand, the valuation is lower. For example, the $861 million market cap minus the $200 million in cash, leaves a net market value of $661 million. That makes the business, generating $70 million in sales, less than 10 times revenue (9.4x).

But here we are piling assumption upon assumption. We don’t have exact figures for hardly any of the figures I have put in these calculations. That is another reason why a conservative investor might wait to buy SOS stock. At least wait until it has dropped to the point where there is plenty of margin of safety.

On the date of publication, Mark R. Hake held a long position in Marathon Digital Holdings (MARA) stock.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.