The Argo Blockchain (LSE: ARB) share price is up about 3,200% in the past year. Yes, it is true. Imagine the pride and the joy of any investor who gets this type of return. However, a word of caution — past performance is not an indication of future results.
I would like to analyse the stock carefully to understand if it’s still a good investment for my portfolio.
The bull caseÂ
The crypto miner’s recent revenues have been strong. In the month of March, it mined 165 Bitcoin or Bitcoin equivalent (together, “BTC”), taking the total amount of BTC mined in the first quarter to 387. The company’s first-quarter mining revenue was £13.4m, compared to £6m in the same period last year. It was the company’s most profitable quarter to date.Â
The company recently announced its plan to develop a new mining facility in the US. It has also hired currency miner Navier on a monthly retainer to provide consulting services. It wants to build a cost-effective and power-efficient facility. This is a good initiative since mining otherwise requires huge amounts of electricity.Â
There is growing interest in blockchain technology due to its various advantages. Recently, a number of big international companies like Visa, Paypal, and Tesla, among others, expressed their intentions to use cryptocurrencies. Big investment banks are also eyeing the lucrative cryptocurrency and blockchain technology. This is positive news for Argo Blockchain’s share price.
Blockchain technology allows cryptocurrencies to function. Many believe the decentralized nature of blockchains might change every aspect of the economy. If this becomes a reality then there is a good chance for Argo Blockchain to benefit in the long term.Â
The bear case for Argo Blockchain’s share price
Even though there is a lot of hype regarding blockchain technology, there is no assurance that governments across the globe will accept cryptocurrencies. If this is the case the company would not be a beneficiary. There is also a good chance that each government might plan its own digital currencies and use different technology.
I would like to highlight the Chinese case. The country has been at the forefront of starting to use digital currency. In the words of Michael Sung, co-director of the Fintech Research Center at Fudan University, “You have central bank digital currencies (CBDC) developed on various platforms such as enterprise blockchain Corda or Hyperledger, and the digital yuan is technically not even on a blockchain“. So, technically speaking it is not on the blockchain. If Bitcoin is not widely used then the stock might hit the floor.
The company’s shares are volatile. Its financials are dependent on Bitcoin prices. Also, if the regulatory rules negatively impact cryptocurrencies, that would have a direct impact on the company’s operations.Â
Final view
The Argo Blockchain’s share price is currently trading at about 25 times its trailing 12 months sales. I feel it is overvalued now. So, I am not a buyer of the stock today. However, I will have the stock on my watchlist. If there is a sell-off then I would be happy to buy the shares.