When investors were piling into crypto miner Argo Blockchain (LSE: ARB) earlier in the year, I didn’t buy in. One reason I didn’t invest was the valuation. I just couldn’t justify the company’s huge market capitalisation (£850m+ in February).
In recent months however, the company’s valuation has come right down. With Argo’s share price falling from above 300p to 125p, the market-cap has fallen below £500m. Should I buy shares now that the company has a lower valuation? Let’s take a look at the investment case.
Argo Blockchain shares: the bull case
There are certainly things to like about Argo Blockchain right now. For starters, the company continues to make operational progress. In an update earlier this week, Argo said that during June, it mined 167 Bitcoin, or Bitcoin Equivalent compared to 166 in May and 163 in April. That brought the total amount of BTC mined year to date to 883.
Secondly, the company also said it’s exploring a potential secondary listing on the NASDAQ. I see this as a positive. If Argo listed in the US, investor interest in the stock could rise significantly. However, Argo said it hasn’t made any decisions regarding the timing or the terms of the potential secondary listing and there can be no assurance as to whether or when the proposed listing may be completed.
Third, Argo recently announced it’s signed the Crypto Climate Accord (CCA) in partnership with DMG Blockchain Solutions (DMG) to promote the decarbonisation of the cryptocurrency industry. One objective of the CCA is to achieve net-zero emissions from electricity consumption for CCA Signatories by 2030. So Argo could be more of a ‘green’ stock in the future.
Finally, the valuation is now far more reasonable than it was earlier in the year. This year, analysts expect Argo Blockchain to generate revenue of around £58m. This means that the stock’s price-to-sales ratio is about 8.4. That still isn’t low, but for a high-growth stock like ARB, it’s not outrageous.
The bear case
I still have some concerns about Argo Blockchain shares however. One thing I don’t like is that the company is a price-taker. Because the price of Bitcoin constantly fluctuates, Argo has little control over its revenues. This is illustrated by the fact that mining revenue in June amounted to £4.36m, 21% below the figure of £5.51m posted for May.
Another thing I don’t like is the regulatory uncertainty. This adds a lot of risk to the investment case. Last month, for example, the Chinese government told banks and payment platforms in the country to stop supporting digital currency transactions. This sent the price of Bitcoin tumbling.
It’s also worth noting that now cryptocurrency exchange platform Coinbase is a public company, investors have other ways to gain indirect stock market exposure to crypto. Coinbase appears to be a safer way to play this market as there are more barriers to entry in the sector. So, going forward, investor interest in Argo Blockchain may not be as high as it was earlier in the year.
Should I buy Argo Blockchain shares?
Weighing everything up, I’m going to leave Argo Blockchain shares on my watchlist for now. All things considered, I think there are better growth stocks to buy.
Disclaimer: The content in this article is provided for information purposes only. It is not intended to be, neither does is constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.