Cryptocurrency miner Argo Blockchain (LSE: ARB) has a lot going for it. The Bitcoin rally last year was so good for the Argo Blockchain share price, that it is up an unbelievable 6,215% in a year.
And three recent developments have made the share even more attractive:
#1. Record revenues for Argo Blockchain
For the first quarter of this year, Argo Blockchain has reported record revenue of £13.4m. While it is loss-making, that is a common phenomenon among fast-growing companies. As a potential investor, I am less concerned about its ability to make profits and more about its potential to grow. In that department, it is clearly doing well.
#2. Going green
Cryptocurrency mining is energy intensive. This is a particular downer for the fledgling industry. But Argo Blockchain has taken steps in the right direction. Recently, it decided to build a mining facility in Texas in the US, which provides energy from renewable sources at low rates.
Even more recently, it has engaged a consultant to work towards its long-term climate strategy. The company aims to become a net zero greenhouse gas (GHG) company over time.
#3. Inflation hedge
Even though cryptocurrencies are still unregulated, their popularity as an inflation hedge may be on the rise.
As inflation rises and paper money loses its real value, typically precious metals like gold can be an alternative. Gold has wide demand and is the least reactive of metals or in other words, it does not corrode. So it can be held for long time periods, which also explains its historical popularity.
But virtual currencies like Bitcoin can be an alternative now too. As per a Bloomberg report, there is some recently observed correlation between fund outflows from gold and inflows into Bitcoin. It is too early to conclusively build a correlation here in my view, but the idea can take root over time.
Shaky foundation for the Argo Blockchain share price
That will happen, however, only if cryptocurrencies flourish over time. Regulators are uncomfortable with them and no industry is free of potential regulation. That includes cryptocurrencies. This means that it is possible that investors could potentially be left holding the bag at some unknown point in the future.
As a result, as the Argo Blockchain share price rises, the risks rise too. From my perspective, the company’s valuation measures are already at uncomfortable levels. Its price-to-sales (P/S) ratio is at almost 100 times.
Compare this to electric vehicle manufacturer NIO, which I considered because it operates in a segment that also saw a recent rally. Its P/S is at 25 times. Its share price has fallen in 2021, but its price is at still elevated levels compared to last year.
To me it appears as if there is too much riding on Argo Blockchain’s prospects, which may or may not be realised. I think that there are positives to the stock, but as I said earlier, I would only buy it knowing full well that it can all be lost.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended NIO Inc. 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.