On Wednesday, Maxim Group changed its rating on Society Pass Inc. (NASDAQ:SOPA) shares, moving from Buy to Hold. The decision came after the company's latest financial disclosures indicated a significant reduction in cash and a continued burn rate that could necessitate additional capital by the end of the second quarter of 2024.
Society Pass reported a year-end cash balance of $3.6 million, a drop from $8.2 million as of September 30, 2023. The fourth quarter of 2023 saw the company go through $4.1 million in cash. The firm noted that although Society Pass is taking steps to reduce costs, the current financial trajectory suggests that the company will likely require more funds soon.
While Society Pass has access to a $40 million equity line of credit, this source of capital comes with strings attached. It is limited by the company's average daily trading volume and a maximum amount that is contingent on Society Pass's market capitalization.
In light of these financial challenges, Maxim Group has also withdrawn its previous price target of $0.75 for Society Pass shares. The firm highlighted that Society Pass is currently trading at an enterprise value-to-revenue (EV/Revenue) multiple of 0.1x its projected 2024 revenue.
This valuation is significantly below the average multiple of 3.4x seen within its peer group. According to Maxim Group, the discounted valuation reflects the operational hurdles Society Pass faces and the potential need for additional capital.
InvestingPro Insights
As Society Pass Inc. (NASDAQ:SOPA) navigates through its financial challenges, the latest data from InvestingPro provides a deeper dive into the company's current standing. With a market capitalization of just $3.94 million, the company's valuation reflects the concerns outlined by Maxim Group. The Price / Book multiple, sitting at a low 0.45 as of the last twelve months ending Q3 2023, suggests that the market is pricing the company's assets conservatively relative to its market value.
InvestingPro Tips highlight that management at Society Pass has been proactive in buying back shares, and the balance sheet holds more cash than debt. This could provide some cushion against financial headwinds. However, it's important to note that analysts do not expect the company to be profitable this year, and recent price performance has been disappointing, with the stock price falling significantly over the last year and continuing its decline in recent months.
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