When I last covered Argo Blockchain (LSE: ARB) in early January, I said I was going to leave the stock on my watchlist. In hindsight, that was the right move. Since that article, Argo Blockchain’s share price has fallen more than 20% on the back of the slump in crypto.
What about now though? Has the recent share price fall created a buying opportunity for me? Or could the stock fall further? Let’s take a look.
3 reasons to like Argo Blockchain shares now
I can certainly see some appeal in Argo Blockchain shares right now. For starters, the valuation is very low.
For 2022, analysts expect the bitcoin miner to generate earnings per share of 12.6p. This means that at the current share price, the forward-looking price-to-earnings ratio is just 5.7. Given Argo’s recent growth, that’s a very undemanding valuation.
Secondly, unlike a lot of other high-stocks, Argo is already profitable. For 2021, analysts expect the group to generate a net profit of £42.9m. Meanwhile, for 2022, they expect a net profit of £72.5m.
Third, there are several things that could potentially drive Argo Blockchain shares higher in the near term. One is a rebound in crypto prices. This year so far, they’ve been hammered. If we see a rebound, Argo’s share price is likely to rise. At the end of 2021, Argo owned 2,595 Bitcoin or Bitcoin Equivalent.
Another is mining capacity expansion. Last year, Argo purchased 20,000 new mining machines for its facility in Texas, which is currently being developed. These are expected to be installed later this year.
A high-risk growth stock
Having said all that, Argo Blockchain remains a high-risk growth stock, to my mind. One reason I say this is that it has little control over its revenues and profits because these are tied to the price of Bitcoin. If the Bitcoin price keeps falling, Argo’s revenues and profits are going to take a hit. And its share price probably will too.
Another reason I see Argo as high risk is that there’s a lot of regulatory uncertainty in the crypto space. Last year, China banned crypto mining. Meanwhile, Russia recently announced that it plans to ban the use and mining of cryptocurrencies on Russian territory. It wouldn’t surprise me that much if we saw other countries make similar moves in the near future.
A third concern for me is that I see little in the way of a competitive advantage here. Ultimately, there’s nothing to stop a competitor stealing market share because there are no real ‘barriers to entry’ in the crypto mining business.
Argo Blockchain shares: my move now
Weighing everything up, I don’t see Argo Blockchain as a strong buy right now. Sure, the stock is cheap. And it could rebound if crypto prices bounce. However, to my mind, the risks remain high.
So, it’s not on my ‘best stocks to buy’ list right now.
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The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
