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The Argo Blockchain share price crash: should I buy the stock now?

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Image: Argo Blockchain

The Argo Blockchain (LSE: ARB) share price is up by 13% as I write, after the company reported that it had taken part in a meeting about sustainable Bitcoin mining with Tesla founder Elon Musk.

Argo Blockchain was already working on plans for greener Bitcoin when Musk triggered a crypto crash by raising concerns about the environmental damage caused by Bitcoin mining. With the ARB share price now down by 50% from its February highs, I’m wondering, should I be buying Argo, ahead of a possible Bitcoin recovery?

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A good day for the planet?

According to Argo Blockchain CEO Peter Wall, “today is a good day for the planet”. Wall says that he enjoyed speaking with Musk over the weekend. He agrees that the Bitcoin mining industry must “improve sustainable mining practices and take ESG concerns seriously”.

As it happens, Argo was already working on a plan to decarbonise the Bitcoin industry. Earlier this year it signed the Crypto Climate Accord, agreeing to “achieve net-zero emissions from electricity consumption” by 2030.

Interestingly, the company says that its mining facilities — which are in the US and Canada — are already “majority hydroelectric”. I see this as an encouraging sign Argo Blockchain may already be making good progress with its goals to cut emissions.

Emissions are only half the problem

Going green won’t help the Argo Blockchain share price if the Bitcoin price continues to fall. The company is investing in building new facilities in Texas. Argo also recently purchased two new data centres, which required the company to take on debt.

The main risk I can see is that Argo continues to invest in expansion but isn’t able to generate payback due to changing conditions in the cryptocurrency market.

This may not happen. But in my experience, when companies with limited revenue and profits take on debt to expand, the risk of financial problems increases significantly.

Argo Blockchain share price: what next?

Argo Blockchain’s share price has risen quickly over the last year, as it expanded its mining facilities and benefited from the higher Bitcoin price. The company reported its first ever profit in 2020, with earnings of 0.6p per share.

Broker forecasts I’ve seen suggest that Argo’s earnings could rise to 8.3p per share in 2021. Based on the group’s £500m market cap, that would price Argo shares on about 16 times 2021 forecast earnings. I think that could be an affordable valuation for this business if it’s able to continue growing.

The problem I have is that Argo Blockchain’s profits depend heavily on the Bitcoin price. I’m not sure anyone can forecast a year ahead accurately.

Is Argo Blockchain’s share price cheap at current levels? Maybe. And maybe not. I don’t know yet.

In the company’s monthly updates for May and June, we should learn more about how the Bitcoin crash has affected Argo’s performance. I’ll be watching with interest. But for now, this situation is still too speculative for me. I won’t be buying Argo Blockchain shares at this time.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Bitcoin and Tesla. 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.

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