Argo Blockchain (LSE: ARB) shares have experienced a nasty sell-off recently. Last week, Argo’s share price fell as low as 115p. That’s about 66% below the stock’s all-time high of 340p, achieved in February. Over a year, the stock is still up about 3,000% however.
Personally, I’m not surprised by the recent share price fall. When I covered the stock in February, I wrote that the company’s market-cap of £850m+ – which equated to around £1.7m per Bitcoin held – looked “too high”. More recently, in April, I said that Coinbase’s arrival on the stock market may impact demand for the stock.
Has the share price fall changed my view on the stock? Let’s take a look at the investment case now.
Argo Blockchain continues to grow
Recent news from Argo Blockchain has been encouraging. For example, in Argo’s full-year 2020 results, posted on 9 April, the company reported revenue of £19m, up 120% year-on-year. It also reported a net profit of £1.7m, versus a £0.7m net loss in 2019. During the year, the group mined 2,465 Bitcoins. That represented an 85% increase on the number of BTC mined in 2019.
More recently, on 4 May, the company provided a healthy trading update for April. It advised that, last month, it mined 163 Bitcoin compared to 165 BTC in March. Mining revenue in April amounted to a record £6.7m (March 2021: £6.57m).
Looking at these updates, it’s clear Argo Blockchain still has momentum.
Argo Blockchain shares are risky
But I still see Argo Blockchain as a very risky stock. One reason is it has very little control over its revenues. In other areas of technology, such as Software-as-a-Service (Saas), companies can incrementally improve their offerings and subsequently hike their prices, increasing their revenues on a regular basis.
Argo can’t do this. It’s at the mercy of the price of Bitcoin, which is highly volatile. On top of this, it’s also at the mercy of crypto ‘influencers’, such as Tesla CEO Elon Musk. When Musk tweeted that Tesla will no longer be accepting payment in Bitcoin, due to sustainability concerns, the price of Bitcoin crashed (and so did Argo’s share price).
With Argo having little control over its revenues, it’s impossible to make accurate forecasts. This means Argo is a speculative investment.
Another reason I see ARB as risky is that there are few barriers to entry in this industry. Competitors could easily come into the market and steal market share.
Finally, the valuation still looks expensive to me. This year, analysts expect Argo Blockchain to generate earnings per share of 0.70p. This means at the current share price, the stock has a forward-looking price-to-earnings ratio of about 211. That looks too high to me, given the lack of barriers to entry and the unpredictability of revenues.
ARB shares: my move now
Given the risks, I’m going to continue to leave Argo Blockchain shares alone. All things considered, I think there are much better growth stocks I could buy today.