Is Soluna Holdings Inc. IPO a Good Buy?

• Long considered a relevant sector because of the worrisome impact of climate change, renewable energy also levers significant political pertinence.
• At the same time, the green energy sector features many problems, such as wasted power, that also opens enterprising opportunities.
• Should sentiment for new offerings continue to improve, demand for renewable infrastructure-related investments could rise.

On paper, the broader narrative for the renewable energy industry is straightforward, requiring no knowledge of complex nuances. With government agencies sounding the alarm on the worrying impact of climate change, it’s imperative that societies transition to clean power to mitigate long-term damage. However, green energy infrastructure isn’t without its economic and technical challenges, which is why the offering of preferred stock for Soluna Holdings Inc. (NASDAQ: SLNH) is intriguing.

One of the most powerful catalysts of the renewable energy industry is the ability to convert naturally occurring phenomena — sunlight, wind, ocean water kinesis among others — into practical power. However, the conversion of primary energy sources into the electrons that disseminate on demand from the household outlet imposes efficiency losses. Moreover, according to Soluna executives, renewable energy facilities don’t always sell the power they generate.

Up to 30% of power generated by the renewables industry worldwide can go to waste, rendering a potentially profitable profile into a tragically valueless condition. To remedy this disastrous dissipation, Soluna buys the excess energy that would otherwise go unsold to power scalable data centers on premise. From there, the company can redirect computing capacity to power other digital enterprises, such as cryptocurrency mining or artificial intelligence-based applications.

Possibly, this groundbreaking waste-to-power business model could help resolve climate change challenges while simultaneously bolstering next-generation technologies.

What Does Soluna Do?

At its core, Soluna is a technology firm specializing in the development of green, modular, scalable data centers for computing-intensive applications. But rather than imposing its own unique footprint on the environment, Soluna’s data centers scale up according to demand. Since the company advantages unsold power, it develops hardware on premise, ensuring maximum efficiency for the underlying business model.

In this manner, Soluna represents an indirect, background player for next-gen innovations such as crypto-mining initiatives. While debate rages on the net energy consumption of virtual currencies, one thing is clear: decentralization isn’t free. But by leveraging power that would ordinarily go to waste, Soluna responsibly buttresses blockchain architectures along with other relevant applications like machine learning.

Moreover, the company features these advantages:

• Modularity: Soluna’s data centers are easily installable and stackable, resulting in quicker integration and utility.
• Scalability: The data center architecture can expand to accommodate the consumption of over 100 megawatts (MW) of power.
• Efficiency: Soluna hardware benefits from an air-cooled infrastructure, thus freeing up power for intensive applications while also ensuring maximum intake of unsold energy.
• Flexibility: The company’s solution is geared toward real-time energy demands, adjusting consumption inflows up or down in minutes.
• Ingenuity: Levering sensor-fusion technology, Soluna automates, monitors and proactively maintains its systems, while also keeping skilled technicians on hand to ensure operational resilience.

Finally, management claims a significant cost advantage for renewable energy facilities wanting to maximize their returns. On its website, Soluna claims that its data centers cost only one-tenth that of traditional counterparts. Further, the infrastructure can be operational in six months.

When is the Soluna IPO Date?

According to the company’s press release, on April 21, 2022, Soluna announced intentions to offer shares of its 9% Series A cumulative perpetual preferred stock. Running concurrently with the underwritten public offering, Soluna also disclosed its intentions to offer its preferred stock directly to certain institutional lenders.

Univest Securities, LLC represents the sole bookrunner for the offering. However, the direct offering will involve no underwriter, placement agent, broker or dealer. The preferred shares trade on the Nasdaq exchange under the ticker symbol SLNHP.

Unlike a traditional initial public offering (IPO), which involves the first time a private enterprise distributes its equity shares to retail investors, an offering of preferred stock affords interested buyers a different angle of exposure to the underlying business. Therefore, not every IPO calendar will list SLNHP since the common-stock counterpart has been trading publicly since August 2021.

Nevertheless, as you develop your investing acumen, you may want to consider the benefits of owning preferred shares as opposed to the common variety. To be fair — and with all other variables being equal — the common stock of a company tends to command the greatest capital gains potential. Also, if you want your voice to be heard as a shareholder, ordinary shares represent the most effective approach.

However, at a time when macroeconomic risks — geopolitical flashpoints, China’s COVID-19 crackdown, soaring inflation rates — are mounting, preferred stock acquisitions may be worth their weight in gold. Primarily, preferred shares facilitate relatively lower capital loss risk. In addition, should a bankruptcy occur, shareholders of this equity class are higher in line than common-stock holders during a liquidation.

As circumstances relate to Soluna, its ties to promising but speculative sectors — renewable energy and cryptocurrency mining — makes its investment case quite treacherous. Moreover, the common shares have printed much red ink throughout the year so far, suggesting pensiveness among participants. By going with preferred shares, though, investors may benefit from an exciting business while also protecting themselves in case of increased selling pressure.

What Analysts are Saying About Soluna IPO

Although most analysts have little to say about Soluna because of its extremely small market capitalization (only around $140 million at time of writing), it’s not difficult to provide a bull-bear narrative for SLNHP stock.

For the optimists, Soluna may be one of the most innovative companies available, converting power that normally would be wasted into enhancing capacities for computing-intensive initiatives, primarily crypto mining. Essentially, acquiring SLNHP stock is akin to owning equity in a blockchain-based enterprise as opposed to guessing the direction of a specific digital asset.

Further, the use case for virtual currencies has expanded substantially because of Russia’s unsettling decision to attack Ukraine. Thanks to their decentralized nature and relatively anonymous infrastructure, cryptos may better facilitate wealth protection and transfer as opposed to holding or carrying physical currency or commodities. In turn, this broader engagement spike may lift demand for mining operations, boding well for SLNHP stock.

On the other hand, the volatility of cryptos themselves presents a headwind for Soluna. Per the company’s risk disclosure, it notes that unfavorably timed conversions between cryptos and fiat currencies (U.S. dollars) could result in lower-than-anticipated income flows, if not outright losses.

More critically, Soluna only has a limited operating history. Therefore, while the idea of converting wasted energy into highly valuable cryptocurrencies is admittedly enticing, management of yet has been unable to prove operational viability.

Soluna Financial History

A natural segue into the financial history of the data-center specialist, Soluna’s fiscal performance leaves much to be desired. In 2020, the company only managed to generate $590,000 in revenue, demonstrating huge risks should the business encounter another global crisis like the COVID-19 pandemic.

To be sure, Soluna recovered nicely in 2021, generating $14.3 million in sales. But the bottom line became problematic, resulting in a net loss of $5.3 million following a net income of $2 million in 2020.

The balance sheet features decent strengths, particularly the cash-to-debt ratio of 1.2 (the median for the computing hardware industry is 1.39). However, the Altman Z-Score — a measurement of bankruptcy probability over the next two years — indicates that Soluna is financially distressed.

Soluna Potential

As a common stock approach, Soluna appeals to investors with a higher risk-reward tolerance because of the business model’s aspirational profile. Contrary to common assumptions, the renewable energy rollout is very much like a baseball game: the winner often comes down to which team fails the least. In other words, the in-between process from energy sourcing to utilization may result in 60% power-loss inefficiencies.

Therefore, converting some of these losses into usable, practical applications can have a profound effect on the green energy machinery, along with commercial enterprises. However, translating this narrative into strong revenue growth and consistent profitability has long been a challenge. So far, Soluna has struggled to make the business work.

Still, if the company succeeds in finding the magic formula, Soluna shares (both common and preferred) could rise dramatically.

Where to Buy Soluna IPO Stock

If you want to participate in Soluna’s preferred share offering, you’ll need to know how to buy stocks. But before you take that step, you must sign up for a brokerage account. Below is a list of best brokers to consider.

SLNHP Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO or similar offering. Don’t engage if you have privileged information.

SLNHP Pre-IPO

For those interested in acquiring SLNHP stock at an anticipated price of $20.01 per share, you should open an account with ClickIPO.com.