Here’s what I’d do about the Argo Blockchain share price right now

The last time I covered the Argo Blockchain (LSE: ARB) share price, I noted that the stock could keep climbing if the value of Bitcoin continued to increase. In the last few days, the value of the cryptocurrency has continued to grow.

However, the stock has not responded as expected. Instead of climbing in line with Bitcoin, shares in Argo have fallen. Over the past month, shares in the cryptocurrency miner have declined by 16%. 

Why is the Argo Blockchain share price falling? 

This doesn’t seem to reflect the company’s recent successes. Earlier in the month, the organisation reported it had achieved record cryptocurrency mining revenues in March. This was the third month in a row the group had recorded record sales. 

With total mining output coming in at 165 during March, a higher cryptocurrency price could translate into significant sales growth. What’s more, at the end of the month, the company said it held 764 Bitcoin and equivalents (BTC) on its balance sheet. 

This level of output at the current Bitcoin price of around $64,000 could generate revenues of as much as £7.8m a month. That’s up from about £6.5m in March.

Of course, these are only back-of-the-envelope-type figures. They’re not designed to be an accurate revenue projection for the company. 

As well as this, the IPO of Coinbase, one of the world’s largest crypto exchanges, should help increase the visibility of cryptocurrency to the world. This could help drive the Bitcoin price higher, ultimately having a positive knock-on effect on Argo. 

Victim of its own success

It seems to me as if Argo has become a victim of its own success. Shares in the company have increased in value by more than 5,400% over the past 12 months as investors have bought into the growth story.

As I’ve mentioned in the past, the stock has surged in value despite having limited revenues. While revenues are now growing, even with sales of nearly £8m a month, the stock is selling at a price-to-sales ratio of around 10. That’s significantly higher than the market median of 2.7. 

That being said, it could be argued that this growth business deserves a higher valuation than the rest of the market. But a multiple of 10 times sales implies investors are expecting a lot. If the company doesn’t live up to expectations, the Argo Blockchain share price could drop substantially.

As well as this risk, if the Coinbase IPO ends up becoming a flop, it could hurt sentiment towards Argo.  As the price of Bitcoin is highly dependant on investor sentiment, anything that damages sentiment could hurt companies connected with the asset. 

After considering these risks and challenges, I’d still buy the stock for my portfolio. However, I’d limit my exposure to the Argo Blockchain share price with a small position.