Argo Blockchain (LSE: ARB) has been tumbling steadily since hitting 360p per share in March 2021. As I write, the ARB share price stands at 75p, for a fall of 79% from that peak. But it has been ticking up since early March.
It has to hit the bottom at some point and then start back up, doesn’t it? That’s what I’ve been asking of late, and thinking about whether I should buy now.
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First, I need to be cautious and and avoid making a common mistake. That is to assume that just because a share has fallen a long way, there can’t be much downside risk left. No, my potential maximum loss if I buy ARB shares (or any other shares) is still 100%.
Why is the ARB share price falling?
So what’s behind the falling ARB share price?
It’s tempting to think it’s all down to the Bitcoin price. When Bitcoin goes up or down, ARB shares do tend to rise or fall too. But there’s more to it than that.
Over the past 12 months, the ARB share price has been lagging further and further behind Bitcoin movements. And even the modest gains of the past few weeks are a bit weaker than cryptocurrency gains.
Bitcoin mining slowing
My Motley Fool colleague Christopher Ruane has summed up the issues well. In short, while Bitcoin prices have been steady, Argo Blockchain has been mining fewer of them.
Part of that is due to increasing competition for access to the global blockchain. That is one of the downsides of cryptocurrency — transaction capacity is orders of magnitude smaller than traditional financial transaction systems.
And there’s more pressure on the ARB share price. We’ve seen strong criticism over the costs incurred in developing Argo’s new mining facility. And suggestions it significantly overpaid for the land in Texas.
So where is the upside?
I think I’m seeing something familiar here. If I’m right, I’m looking at a popular growth stock that has collapsed but is now very possibly oversold.
Drivers of growth
I think it’s way too early to call the end of large-scale cryptocurrency mining.
Whether its Bitcoin, or some other blockchain entity, Argo’s growing server resources will be there to address demand. Computer software is extremely flexible, so I’d expect Argo to be able to exploit future technological developments. Its mining will surely continue to generate valuable commodities.
There’s a key downside too, though. It’s the difficulty of putting a valuation on something like the ARB share price.
ARB share price valuation
The company’s market cap currently stands at approximately £350m. At the end of February, Argo owned £97m in Bitcoin. Deduct that, and we’re looking at £253m for the business.
Argo mined £4.15m in cryptocurrency in February, for a rate of close to £50m per year. Is it worth a bit over five times its annual mining generation? It might well be.
Oh, and the obvious other risk… I have no idea what will happen next to the Bitcoin price. But yes, there are big risks facing the ARB share price. But I might be tempted to go for a small investment.