Indeed, the stock has fallen in value by around 70% in the past year. Over the same timeframe, the FTSE All-Share index has returned 8.2%.
In other words, over the past year, the Argo Blockchain share prices underperformed the broader market by nearly 80%. However, during this period, the company has continued to push forward with its growth plans.
The Bitcoin mining corporation has increased capacity and ramped up revenue growth. Management is also pursuing other growth initiatives to help expand the company’s mining capacity and transition away from using hydrocarbon fuels to power Bitcoin mining facilities. That is without taking into account the value of the Bitcoin owned on the company’s balance sheet.
Despite the group’s improving fundamental performance, it looks as if there is one reason why investors have been selling the stock recently.
Argo Blockchain share price under pressure
Analysts have long expressed concern about the company’s reliance on shareholders to fund its expansion plans. While the business is technically generating revenue from its Bitcoin operations, it relies heavily on shareholders to provide cash initiatives. This means the organisation is issuing a substantial amount of new shares.
For each new share issued, existing shareholders are diluted. This means the company’s market capitalisation may remain constant, but with more shares in issue, the value of each share becomes worth less. Therefore, a firm’s share price will decline even though its market capitalisation remains constant.
It looks to me as if this is the main reason behind the recent Argo Blockchain share price performance. And it does not look as if this trend is going to come to an end any time soon.
Analysis published last year showed the business was planning a significant increase in the number of outstanding shares over the next couple of years as it pushed ahead with its growth initiatives.
This implies the stock could continue to decline over time even if revenues grow. Having said all of the above, over the long run, if the company’s growth plans pay off, revenue growth could help offset the additional share count.
This will have a positive impact on the corporation’s share price and could send the stock back to previous highs.
However, despite this potential, I am a bit worried about the trajectory of the company over the next few years. The outlook for the cryptocurrency sector is becoming increasingly uncertain as regulators clampdown on the industry.
This means it is difficult for me to analyse how the business will perform over the next couple of years. It is even harder to understand how the organisation will perform when it is planning to dilute shareholders.
Based on these factors, I would not buy the stock for my portfolio today. While the business could have potential if the Bitcoin price does increase significantly from current levels, I think the Argo Blockchain share price is likely to continue to struggle as the company pushes ahead with its current growth plans.