Argo Blockchain (LSE: ARB) is a company focused on large-scale cryptocurrency mining and it has performed extremely strongly since December 2020. Indeed, since this date, the Argo Blockchain share price has climbed 1,500%. This is due to its rising productivity and the strong performance of many cryptocurrencies like Bitcoin.
Nevertheless, the share price has been significantly more volatile recently, with some investors deciding to cash in profits but others still seeing a good opportunity to buy. As such, should I be buying, or is this stock now severely overpriced?
Recent trading update
The recent full-year trading update was strong and for many investors, it justified a higher share price. Indeed, compared to 2019, revenue rose 120% and the number of Bitcoins mined rose from 1,330 to 2,465. The trading update also revealed that the company delivered its first annual profit. Despite the fact that this was only £1.7m, it is still very promising to see profitability, and this bodes well for the future. The Argo Blockchain share price was therefore able to rise strongly on these positive results.
Recent activity for the company also looks promising. Indeed, it has acquired 320 acres of land in Texas for $17.5m, with access to low-cost clean energy. This land will be used for the construction of a 200-megawatt cryptocurrency mining facility. As such, this should help the company increase production and capitalise on the industry’s growth. This is the main reason why I would buy the stock.
Risks for the Argo Blockchain share price
While the company has performed strongly, there are a number of risks that come with the stock. First, I feel that it is overpriced. Indeed, due to the Argo Blockchain share price rising so strongly over the past few months, the shares now have a price-to-earnings ratio of 323! This suggests that future growth is already factored in to the price, and Argo Blockchain will have to deliver on these expectations. A failure to do so is likely to lead to large share price losses.
Furthermore, profits are also highly dependent on the value of its core assets, in this case cryptocurrencies. Although this is true for traditional mining companies as well, for Argo Blockchain, the value of cryptocurrencies is extremely volatile. Of course, this can be beneficial for the crypto miner, yet it can also lead to negative consequences. As this is completely out of the control of the company, it is a major risk to consider.
My outlook for the stock price
I’m personally not going to buy Argo Blockchain shares. Although the stock does have a lot of potential, and looks set to increase profits in the future, I still don’t think that this warrants its very high share price. Indeed, I believe that a further correction is required to make the Argo Blockchain share price more reasonable. As such, investing right now seems too risky for me.