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Over the past year, the valuation of Argo Blockchain (LSE: ARB) has fallen 61%. That means I can now get a lot more Argo Blockchain shares than I could before for the same amount of money.
But are they worth buying?
Why stocks fall
As a cryptocurrency miner, Argo has suffered along with the value of crypto. Bitcoin has lost 46% of its value in the past year. So it’s understandable that Argo shares have taken a hit.
Still, the fall in Argo Blockchain shares is greater than that of Bitcoin. Why is it like that?
I think it partly reflects a change in sentiment towards the company. As crypto has tumbled, Argos’ big investments in new mining capacity, like the massive Texan data center, threaten to look more like a white elephant than an inspired piece of strategic foresight. But that could change if bitcoin prices rise enough, in my opinion.
Meanwhile, the company continues to mine successfully. Last month, for example, what the firm terms mining profits came in at nearly £1.5m. But that hasn’t been enough to stop Argo Blockchain shares from sliding.
Reasons for optimism
To a significant extent, the fortune of Argo is linked to what happens with crypto values. High crypto prices do not necessarily mean that Argo will succeed. But without strong pricing, a business model that includes Argo acting as a crypto miner is in trouble.
No one knows what will happen to crypto prices in the future, which is a big risk for Argo Blockchain stock. Despite already falling far, they may continue to decline if crypto prices fall.
But it also goes the other way. If crypto prices rebound, Argos’ proven mining expertise and infrastructure could help boost profitability. On top of that, I think the company’s network of data centers could be useful even if crypto prices remain deflated. The demand for data storage will continue to increase in the coming years. That’s something Argo may be able to leverage to develop revenue streams outside of crypto mining.
I also think the management deserves credit for the way it has developed the business. Revenues last year almost quadrupled compared to the previous 12 months. The company made a profit of £30 million, which means it currently trades at a price-to-earnings ratio of just 8. Falling crypto prices could hurt the year’s performance and that could mean much lower earnings. But I think it is positive that Argo has shown that they can make a healthy profit under the right conditions.
My next move
I have a small holding of Argo Blockchain shares in my portfolio.
For now, I will continue to hold them and hope that the company’s performance will improve. But falling crypto prices have highlighted just one of the risks here and I don’t plan to buy any more, despite the price falling.