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Finance

Up More Than 125% YTD, Does Sphere 3D Have More Room to Run?

Canadian software development company Sphere 3D Corp. (ANY) has lately been attracting the attention of retail investors because of its high-profile mergers. This has made it a highly coveted meme stock now.

ANY is frequently discussed in Reddit forum r/pennystocks. The stock has gained 126.6% year-to-date, and 20.9% over the past month.

So, here’s what we think could shape ANY’s performance in the near term:

Upcoming Merger

On June 7, ANY agreed to a merger  with Gryphon Digital Mining, Inc. to create the world’s first publicly traded 100% renewable energy bitcoin mining company. Gryphon’s zero carbon footprint business model and public commitment to ESG principles as one of the first signatories to the nascent Crypto Climate Accord (CCA) make it well positioned to disrupt the crypto industry. However, under the proposed deal, ANY shareholders will retain ownership of 23% of the merged entity.

Following the release of this news, ANY stock gained 56.3% to hit a $3.75 intraday high on June 10. The merger was backed by some of the most popular social media influencers, including Addison Rae and Griffin Johnson, making it highly appealing to  Gen Z investors.

This comes in at a time when industry icons Elon Musk, Jack Dorsey and Michael Saylor are still publicly debating how to solve the high energy consumption problem in mining cryptocurrencies. Thus, as industry leaders struggle to come up with solutions to reduce that carbon footprint, relatively lesser-known company Gryphon’s technology raises doubts. As a result, ANY has declined 10.7% on July 13.

Click here  to check out our Cryptocurrency Industry Report for 2021

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Short Interest

As of June 30, 623,400 shares of ANY were sold short, representing  a 4.7% short interest in its floating shares. Furthermore, the stock has a short volume ratio of 34.7% as of June 14, indicating a slight increase from the previous trading session. The high short interest in the stock makes it well-positioned to witness a short squeeze soon, given increasing comments about it in popular Reddit forums.

Lawsuits

ANY’s merger agreement with Gryphon Digital Mining, Inc. is currently being investigated by multiple law offices regarding potential breaches of fiduciary duty, including dilution of ownership interest for ANY shareholders, and other violations of federal and state law. Also, law firms are currently investigating whether ANY’s board of directors acted to maximize shareholder value and conducted a fair process.

The company’s previous acquisition agreement with Rainmaker Worldwide, Inc. was also investigated by law firms to determine the fairness of proposed that merger. However, following multiple lawsuits and internal management disagreements, the merger agreement fell through.

Bleak Financials and Negative Profit Margins

Despite the rising demand for software services since last year, ANY’s recent financials demonstrate weak operational performance and market reach. The company’s revenues and gross profit declined 6.9% year-over-year to $940,000 and $431,000, respectively, in its fiscal first quarter, ended March 31. Its net loss and loss per share came in at $2.57 million and $0.27, respectively, for this period.

ANY’s 46.4% trailing-12-month gross profit margin  is slightly lower than the 48.^% industry average. However, the company’s trailing-12-month net income margin and levered free cash flow margin came in at negative 147.51% and 98.29%, respectively.

Unfavorable POWR Ratings

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ANY has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

ANY has an F  grade for Quality, and D for Value. The company’s negative profit margins are in sync with its Quality grade. Furthermore,  the stock’s relative overvaluation justifies its  Value grade. ANY’s 12.86 trailing-12-month EV/Sales multiple  is 181.8% higher than the 4.56 industry average.

Of the 131 stocks in the D-rated Software – Application industry, ANY is currently ranked #128.

In addition to the grades we highlighted, one  can view ANY Ratings for Stability, Sentiment, Momentum, and Growth here.

One  can access the top-rated stocks in the Software – Application industry here.

Click here to check out our Software Industry Report for 2021

Bottom Line

ANY’s weak business structure is reflected in its recent financial reports. However, the company is currently focused on expanding its operations in the cryptocurrency space without addressing the limitations in its existing operational structure in the software space. Furthermore, the current speculation regarding the company’s impending merger with Gryphon Digital and its overvaluation we think make the stock best avoided now.

 


ANY shares were trading at $3.03 per share on Wednesday afternoon, down $0.21 (-6.48%). Year-to-date, ANY has gained 111.89%, versus a 17.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More…

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