The Argo Blockchain (LSE: ARB) share price has surged in value since the beginning of 2021. Shares in the cryptocurrency miner are up 176% year-to-date and 1,800% over the past 12 months. The stock has added to this performance in early deals today, rising by more than 10%. This staggering performance has made the stock one of the best performing investments on the London market over the past 12 months.
However, past performance should never be used as an indicator of future potential. So with that in mind, today I’m going to take a closer look at the business to establish whether or not the Argo Blockchain share price is an interactive investment at current levels, or if the market has become overexcited.
The surge in investor interest in Argo Blockchain in can be traced back to the rising price of Bitcoin. The asset’s value has increased by 355% over the past 12 months.
At the beginning of February, the company reported that its cryptocurrency mining revenues for January were £2.5m, up from £1.6m in December. Its average monthly mining margin rose to 71% from 60% a month ago. Within the same update, management informed the market that the business had signed a share purchase agreement with GPU.one, a Canadian data centre provider, for the strategic purchase of two data centres in Quebec. This agreement would provide the business with “long-term stability and direct control over the facilities.“
As well as this operational expansion, Argo said it held 501 Bitcoin and Bitcoin Equivalent. Following the recent rally in the price of Bitcoin, I estimate the value of these coins held by Argo is worth £23m.
So, it’s clear to me that Argo owns a substantial asset on its balance sheet in the form of cryptocurrency. The acquisition of data centre assets is also positive.
However, this business isn’t without its risks. Bitcoin is a highly volatile asset. Its value can move by 10% or more every day. As such, while it is easy to place a value on Argo’s Bitcoin reserves right now, it’s impossible to even guess how much they will be worth in 12 months’ time. The same goes for the company’s revenue projections and, as a result, the Argo Blockchain share price.
Argo is primarily a mining company. Like any mining business, it cannot control the price at which its output is sold. The organisation has to accept the price buyers are willing to pay.
Argo Blockchain share price challenges
So. while shares in the company might have put in a good performance this year, considering the volatile nature of cryptocurrency, it is impossible for me to value the business. It has a market capitalisation of £463m at the time of writing, which seems excessive considering the group’s minimal revenues.
Then again, if the price of Bitcoin continues to surge, the business’s top and bottom lines may continue to grow as well. However, considering the uncertainty level here, this isn’t a company I’d be comfortable holding personally.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has 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.