Is the Argo Blockchain (ARB) share price good value at 70p?

Jon Smith considers the ARB share price fair value with some financial metrics.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

New virtual money concept, Gold Bitcoins

Image source: Getty Images

Despite posting some positive financial performance earlier this year, the Argo Blockchain (LSE:ARB) share price has struggled over the past 12 months. In fact, over this period, the shares are down 69%. There has been a clear trend lower here, but as it falls the company valuation becomes cheaper. So at 70p, is this a good value buy for me?

Trying to find a fair value

It’s always hard to pin down an accurate value on a company like Argo Blockchain. For a start, it is unique in terms of comparison to other listed stocks. It’s a cryptocurrency mining company, with very few similar firms out there that are listed in the UK.

Instead of comparing its value to other stocks, I can look at a more generic measure such as the price-to-earnings ratio. Currently, using an earnings per share of £0.021, the P/E ratio works out to be around 33. This is double the FTSE 100 average, but I would classify it as a growth stock.

As a growth stock, investors tend to be happy even with a high P/E ratio because they think that future earnings will be large. As a result, they pay a premium on the current price due to the future potential.

So at 70p, I think a P/E ratio of 33 is a fair value. However, I wouldn’t say the current ARB share price is fantastic value. Rather, I think at previous levels above 200p the stock was overvalued.

Other points to note about the ARB share price

Putting the P/E ratio to one side, the enterprise value is worth considering.

The enterprise value is an alternate measure of valuing a company. The market capitalisation is the main way most investors use to measure value. But it can be distorted by fluctuations in the share price. The enterprise value looks at the total value of a business, including points like cash and debt.

At the moment, the ARB share price gives a market cap of £330m, but an enterprise value of £337m. The fact that they are both similar again leads me to conclude that 70p is a pretty fair price for the company to trade at right now.

One point that is worth flagging is that the ARB share price (and the fate of the company) is heavily impacted by the price of the coins it mines. In large part, this relates to Bitcoin. If the price of Bitcoin doubles, then there’s a high likelihood the share price will shoot higher.

This is in part due to the higher value of what’s being mined, and so the higher revenue that should result. It’s also because some investors will buy ARB shares as a way of getting exposure to Bitcoin. This is in the same way that some people buy oil stocks to get exposure to oil price movements.

Overall, I personally think 70p is a fair value for the ARB share price. Therefore, until something materially changes, I won’t be investing.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Jon Smith and The Motley Fool UK have 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.

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.

More on Investing Articles

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

Should I buy Lloyds shares while they’re still under £1?

The banking sector might finally be back on the road to long-term health. I'm thinking of buying more Lloyds shares…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Using the price-to-earnings metric to find the cheapest UK shares to buy now!

There’s certainly no shortage of value UK shares right now. I'm finding the cheapest stocks for my portfolio using the…

Read more »

Man changing battery on electric bicycle
Investing Articles

Stock market recovery: my top 2 FTSE 100 shares to buy this month!

The UK index might be trading above 7,500, but many FTSE 100 shares still haven't recovered. In fact, plenty trade…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

4 of my best shares to buy for an autumn stock market bounce

Jon Smith explains which are his best shares to buy depending on different scenarios behind a potential market rally.

Read more »

Risk reward ratio / risk management concept
Investing Articles

Is the GSK share price good value after the 13% fall last week?

Jon Smith considers the reason behind the sharp fall in the GSK share price last week, and wonders if now…

Read more »

Young black woman in a wheelchair working online from home
Investing Articles

At under 5p, are Woodbois shares a no-brainer buy now?

I didn't buy Woodbois shares when they were up over 8p. Now they've fallen back, I'm wondering if I'm seeing…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

Are we about to see a raging bull market for shares?

Investor sentiment looks like it's changing and we could be in the early stages of a bull market for shares…

Read more »

Black father holding daughter in a field of cows
Investing Articles

I’m investing just £5 a day in income stock to aim for £8,000 a year in passive revenue!

Income stocks form the core part of my portfolio, offering me passive income with minimal effort. But I'm reinvesting my…

Read more »