I can’t deny the phenomenal run Argo Blockchain (LSE: ARB) shares have had. While there’s been some volatility, the stock is up 460% year-to-date and over 4,400% in 12 months.
Yes, they’re more expensive now. But as a long-term investor, I’d still buy the shares. Here’s why.
Argo Blockchain is in the limelight again having released its February operational update. Overall, it was positive, but what stuck out for me was the CEO’s pay.
Its top executive, Peter Wall, is now being paid in the most popular cryptocurrency, Bitcoin. I like that he now has further ‘skin in the game’. Wall is also a shareholder in Argo Blockchain, a further incentive for him to make the company a success.
I should also mention that Wall seems to like diving deep into disruptive companies. There’s nothing wrong with this and I commend his bold actions. Wall is also the Non-Executive Chairman of the recently-listed consumer cannabinoid products firm, Cellular Goods.
Since the beginning of the year, Argo Blockchain has been very busy. The past two months have seen plenty of news from the company in terms of mining cryptocurrency and profitability. But there’s more news too.
At the beginning of February, Argo Blockchain announced that it had made a 25% investment in Pluto Digital Assets. This is a cryptocurrency and venture capital company. I like the fact that Argo Blockchain is diversifying its future revenue streams by buying stakes in early-stage cryptocurrency firms. It will take time to do pay off (if it ever does), but as a long-term investor, I think this is future focus is a good thing.
On that subject, it has also entered into an agreement to acquire land in West Texas, USA, to build a crypto-mining facility in the next 12 months. Argo is using its shares to pay for the land. But it has a $100m credit facility to fund the mining facility project. It’s a bold move but a necessary one as the technology on which it relies needs continual updates. With that in mind, last month, it also announced a partnership with ePIC Blockchain Technologies to supply it with state-of-the-art mining machinery. And it has also announced that it has installed 4,500 new mining machines.
What does this all mean? To me, it says that Argo Blockchain is boosting its infrastructure to better compete as a global cryptocurrency miner.
But it also means the firm has to invest heavily to stay ahead, something that comes under the risk column. Argo Blockchain is clearly incurring costs to grow its infrastructure. This could impact profitability and thereby the share price.
Also risky is that the shares are in many ways a proxy for cryptocurrencies, especially for the price of Bitcoin. Given how volatile cryptocurrencies can be, I’d expect the stock to exhibit this trait too.
Even the UK financial regulator, the Financial Conduct Authority (FCA) has warned against cryptocurrencies. Hence I’d only ever invest what I could afford to lose.
As a long-term investor, I acknowledge all the risks that come with a young company adopting a relatively new technology. It won’t be smooth sailing, but I think the company is taking the right steps. Hence I’d buy Argo Blockchain shares in my diversified portfolio.
Nadia Yaqub has no position in any of the shares and cryptocurrencies mentioned. The Motley Fool UK has recommended Bitcoin. 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.