Over the past six months, the Argo Blockchain (LSE: ARB) share price performance has been disappointing. The stock has slumped 51% since the beginning of March, although over the past 12 months, shares in cryptocurrency miner have added nearly 2,200%.
Despite its more recent lacklustre performance, the stock has rallied during the past few weeks. After falling to a low of around 86p at the end of July, it has since recovered to 137p, a gain of 59%.
The stock has increased in value as the firm’s fundamentals have improved. And as the mining group’s output continues to rise, I think the Argo Blockchain share price will continue to push higher.
Argo Blockchain share price outlook
According to the firm’s latest trading update, Argo mined 206 Bitcoin or Bitcoin Equivalent (BTC) in August. That’s compared to output of 225 BTC in July.
For the year-to-date, Argo has now mined 1,314 BTC. At the end of August, the company owned 1,659 Bitcoin or BTC equivalent. It generated mining revenues of £6.8m in August compared to £5.6m in July. Thanks to a higher Bitcoin price, the firm’s revenue increased despite the fall in output.
Whenever I have covered the Argo Blockchain share price in the past, I’ve always tried to make it clear that I believe the company needs to prove itself before I will consider it as an investment. What I mean by this is I want to see the firm generate a sustainable revenue stream from mining.
Over the past eight months, I think the company’s met this goal. Revenues have surged as the group’s mining activities have yielded impressive results. Based on the current and historical output, City analysts now reckon the enterprise will earn a net profit of £39m this year on sales of £79m. On an earnings per share basis, analysts have pencilled in a figure of 15p.
Based on these numbers, the Argo Blockchain share price is selling at a P/E ratio of 9.4. I think that looks cheap, considering the group’s large profit margins (it generated a mining margin of 86% in August). These numbers also exclude the value of the BTC assets on the firm’s balance sheet.
While it’s impossible to predict future share price movements, these figures suggest the stock can continue to push higher.
Still, while the stock looks cheap at current levels, I should note that the price of Bitcoin is highly volatile. This means investors should view analysts forecasts with caution. There’s no guarantee the company will hit the City’s profit targets for the year.
Further, Argo’s mining margin could fall if costs start to rise substantially. This would hurt profitability and possibly impact the stock’s valuation.
Despite these risks and challenges, I think the company is heading in the right direction. With that being the case, I’d buy a speculative position for my portfolio, considering the firm’s growth and low valuation.
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.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Bitcoin. 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.