I’ve been watching the Argo Blockchain (LSE: ARB) share price slide. And I keep asking myself if it’s finally fallen far enough for me to buy. I’m pondering that question again after seeing ARB shares jump 15% when the market opened on full-year results day.
With profit multiplying sevenfold from the previous year, and the share price down 80% since its peak, my impulsive reaction is that it surely must be a buy now. But acting on impulse is risky.
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Much of the ARB share price collapse has been in the last 12 months, down 70%. Are we past the bottom now?
Revenue for 2021 almost quadrupled to £74.2m, from £19m. And the company generated EBITDA of £52.9m, a massive seven times the 2020 figure.
The results announcement did speak of “a significant increase in Argo’s hashrate,” and easier access to the Bitcoin network after the Chinese ban on Bitcoin mining in May 2021.
But the big driver of 2021 profits is the Bitcoin price. Bitcoin started rocketing at the end of 2020, and remained at much higher levels for the whole of 2021. That helped Argo to achieve a mining margin of 84%.
Its Bitcoin mining total actually fell between 2020 and 2021, by 17%. That was beyond the company’s control, though, due to the ‘halving event’ of May 2020. It resulted in the block award falling from 12.5 to 6.25 Bitcoin per block.
The company increased its mining capacity from 0.6 to 1.6 exahash per second (EH/s) during the period. So capacity more than doubled, to generate 17% less cryptocurrency.
Argo has a target hashrate of 5.5 EH/s by the end of 2022. But the need to keep growing rapidly simply to keep up isn’t something I look for in a long-term investment. There’s another halving coming in 2024, which must put pressure on the ARB share price.
Argo mined 2,024 Bitcoin in 2021. At 31 March 2022, the company was sitting on 2,700 Bitcoin and Bitcoin equivalents, worth £93.6m.
So the company is valued at a market cap of £285m, while owning Bitcoin assets worth a third of that. Of course, the valuation has to represent the future crypto stream coming from the company’s facilities too. And that’s not easy to estimate.
Argo is expanding its operations, which costs a lot of money. Over the year, the company raised £144m through equity issues plus £29.6m in unsecured debt. Year-end total debt reached £53.7m.
ARB share price reversal?
That raises concerns over debt and equity dilution. But I still can’t help thinking the next 12 months or so could bring a reversal of the ARB share price fall, and possibly the start of a few years of gains.
But tempted though I am, I keep thinking of Warren Buffett’s advice: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
I haven’t the faintest idea where anything Bitcoin-related might be tomorrow, never mind a decade in the future. So I will continue to sit this one out